Assessing risks is a natural part of life. It is the reason we pay for things like auto or homeowners insurance. Since you cannot always plan for when disaster may strike and put a huge dent in your savings, we take measures to protect ourselves from potential risks that could hurt our finances.
As a homeowner, you care for your property and personal possessions. You must maintain these elements, such as air conditioning systems, to continue using them, but it is also important to consider risks if you plan to sell your house. During a real estate transaction, warranties may play a significant role in the negotiations between the buyer and seller.
Purpose of Home Warranties
Home warranties are another form of financial protection for various home elements. While homeowners insurance may cover events like storms, water damage, fires, or other circumstances, some systems and appliances in the house could fail for different reasons.
A home warranty protects the homeowner from unexpected repair costs when covered systems and appliances fail. Often, these costs can burn a hole in the property owner’s wallet, so purchasing a policy from a home warranty company will save them a lot of money.
Coverage
If you plan to purchase a home warranty, researching the coverage limits is essential. The purpose of the home warranty is to protect the policyholder from covered losses. This will include only the appliances and systems outlined in the coverage and only if they fail for the stated reasons.
For example, normal wear and tear typically does not qualify as a reason for the warranty to kick in. Some home warranties cover a house’s basics, while others target specific systems. Always read the fine print before signing a contract with a service provider.
Many also have exclusions and specifications regarding repairs. You often must work with an approved service provider. Malfunctions due to improper maintenance, including from previous owners, may not qualify. Specific appliance or plumbing issues in existing homes also don’t qualify for coverage.
Benefits
The benefits of purchasing a policy from a home warranty company far outweigh the costs in most cases. Although you may pay a few hundred dollars a year, you could save thousands on repairs to major appliances. You’ll also enjoy peace of mind.
Types of Home Warranties
Like homeowners insurance, there is more than one type of home warranty. Some policies cover more potential repairs but in smaller amounts. Others could completely cover specific types of repairs. Here are some policies you can purchase from a home warranty provider to protect yourself financially.
Homebuyer’s Warranty
It is very common for a homebuyer to purchase a warranty when they close on a new home. Often, a homebuyer’s warranty will cover certain costs for the first year of ownership for a new house. Some home builders offer these warranties.
This is a vital layer of protection for the new homeowner, as there could be issues on the property that were undiscovered by the home inspection or undisclosed by the seller. If significant systems or appliances malfunction in that first year under a covered event, you won’t have to pay as much after spending thousands on the home purchase.
Renewal Warranties
Most homeowners purchase coverage under a home warranty plan when installing a new system. For example, if they invest in a roof upgrade, they will buy a warranty to cover it simultaneously if the installation process is ineffective.
If the home warranty plan expires, you may have the option to extend it. Usually, the terms of a renewal warranty will change since the covered system is several years older. However, it can maintain financial protection for a vital component of your home in case something goes wrong after the initial warranty ends.
Optional Coverage
Basic home warranties usually cover specific house components, such as water heaters, household appliances, heating, plumbing, etc. However, if there are other essential elements on the property not listed in the basic home warranty plan, you can pay for additional coverage.
For example, if you own a pool, spa, or septic system, you could request more coverage from the home warranty company to include these elements. It’s crucial to ask a company if specific components are covered
How Home Warranties Work
When you have a service contract with a home warranty company, you must understand how to take advantage of the benefits. Here are the typical steps to claim reimbursement or payment for a covered repair.
Service Call Fee
Every service contract with a home warranty company typically includes a service call fee, which works similarly to a copay for auto or home insurance. Homeowners pay the call fee when they request a warranty repair. If the repair cost exceeds the warranty coverage, this additional expense is separate from the service fee.
Repair or Replacement
Once you request the repair or replacement, the home warranty company will send a technician to inspect the issue and determine if it is covered. The company will then organize the actual repair, either hiring a contractor or sending their service professionals to do the job.
In some cases, you can hire a contractor to tackle the project, but the home warranty company must typically approve this professional before they will cover it. Companies often consider whether the contractor has complaints with the Better Business Bureau, whether the Federal Trade Commission licenses them, whether they have insurance, and the fixed price before approval.
Contractor Network
The home warranty company typically has a network of approved contractors with whom they will work. Once the repair is requested, the company will likely hire a firm from this network to take care of the project.
This ensures the job gets done right and for a fair price. Otherwise, the warranty company could deny coverage of the loss. It is always better to understand your service contract to avoid investing in repairs yourself and losing out on coverage.
Claims Process
The claims process for a home or builder warranty works similarly to insurance claims. You file a request for the repair, schedule a service appointment, and pay the call fee to initiate the work.
Choosing a Home Warranty
If you want access to these benefits, you must choose the right home warranty. Some coverage plans are better suited to specific homeowners, so you don’t want to overpay for coverage on appliances or systems you don’t need. Here are some tips for choosing the proper warranty.
Coverage Options
Always compare coverage options from different companies to determine their cost and benefits. Homeowners should first assess their home’s systems to determine their needs, including air conditioning systems, appliances, fixtures, and more.
Cost
The level of coverage determines your warranty plan’s annual or monthly fee, the age of the home, the home’s appliances, how old major systems are, and its location. When comparing costs, ensure you understand the amounts each plan covers to find the most efficient option for your budget.
Reputation and Reviews
You should always research the company you purchase home warranty coverage from before signing a service contract. Make sure they have a professional reputation and favorable online reviews. The last thing you want is to pay for a warranty with a company with numerous customer complaints with consumer affairs.
Limitations and Exclusions
Paying a service fee does not guarantee the warranty will cover your repair. Every warranty plan has limitations and exclusions that homeowners should be aware of. Here are a few common limitations with a home or builder warranty.
Pre-Existing Conditions
The plan will not provide coverage if you purchase a warranty when a specific appliance or system is damaged, such as the plumbing system. Known issues or pre-existing conditions on the property are rarely covered, which is why buying a warranty early is the best option.
Maintenance Neglect
As a homeowner, you are expected to maintain the home’s appliances and systems. Failure to do so could result in voided claims. Take care of your home and all the covered features to ensure your claim will be approved under the warranty.
Specific Exclusions
Home and manufacturer warranties cannot cover every repair, so contracts will include multiple exclusions. Some of the most common exclusions include cosmetic damage, improper installation, or an act of God, which essentially means a natural disaster. Many natural disasters won’t be covered under a warranty because they are commonly covered by homeowners insurance.
Sell to a Cash Home Buyer Even if You Don’t Have a Warranty
Warranties can play a role in a real estate sale. Some buyers may hesitate to purchase your home if you do not have manufacturer warranties covering specific home systems. Instead of investing in expensive upgrades or new warranties, you can sell your house to a cash buyer like A-List Properties. Our team can buy your house as-is and without the assistance of a real estate agent, so you can save money on repairs and realtor commissions.
Call us today at 972-526-7042 or complete the online form to request a fair cash offer from A-List Properties.
Zach Shelley
Zach Shelley is a seasoned real estate investor with a diverse network spanning across the nation. As the founder of his own real estate venture, Zach is committed to offering innovative solutions to homeowners facing various real estate challenges.. Through his dedication and strategic approach, Zach continues to make a significant impact in the real estate industry, providing homeowners with alternative pathways to navigate their property transactions.
