What Is A Home Warranty & How Is It Different To Home Owner's Insurance?
What Is A Home Warranty?
I like to say that a home warranty picks up where a home insurance policy stops. Home insurance covers large events that are usually accidents or could not have been prevented by general maintenance. Insurance should cover something like your air conditioning unit breaking because it was struck by lightning, but it wouldn't necessarily pay to repair your air conditioning motor because it was old and died from overuse. A home warranty is designed to give a home owner the peace of mind that if something breaks and their home insurance policy won't cover it, they still have a way to get most of the repair cost covered instead of paying for it entirely out-of-pocket.
How Much Does A Home Warranty Cost?
The cost of a home warranty depends on the property, the company you purchase from, and what is included in the warranty, but it is typically around a $500 to $700 annual expense. In addition to the annual premium for the home warranty, there is also a deductible. On average, the per incident deductible is around $100, but there are situations in which it can be a little bit less (or more) depending on what kind of plan you choose.
How Does A Home Warranty Work?
What Kind Of Things Does A Home Warranty Cover?
You can get a home warranty that covers all different kinds of things. Many companies offer tiered packages, with more being covered the more you pay. Typically, things like appliances and major systems (HVAC, roof, hot water heater, electric, plumbing, etc) are covered. Some home warranty companies will also offer coverage for in-ground pools and spas, septic systems, water wells, and even guest suites. Clicking this link will open a PDF of an example contract offered by one of the national home warranty companies, American Home Shield. This is provided as an example of how coverage can work and is not intended to be representative of all home warranty companies. It is also not guaranteed to be the same terms that your warranty will include if you purchase an American Home Shield policy.
Important Note For Home Buyers Before Going Under Contract
At the time you go under contract to purchase a home, you need to make several decisions about how you're going to structure your offer. Things like price, closing date, whether you're asking for the sellers pay some of your closing costs, and several other things are part of the offer structure. One of the things you have to decide is whether or not you would like the seller to pay for your home warranty. A buyer always has the opportunity to purchase a home warranty on their own if the seller won't pay for it, but in certain situations the buyer may want to ask the seller to cover the cost of the home warranty.
If a buyer asks the seller to cover the cost of a home warranty, that comes out of the seller's bottom line. Typically, my suggestion is that a buyer who is asking for the seller to pay their closing costs doesn't also request a home warranty, however, it is ultimately up to the buyer to decide if they would like to ask for it, and we can discuss the best course of action based on your specific situation when the time comes. Keep in mind - if a buyer wants the seller to pay for the home warranty, they need to know which company they want to purchase the home warranty from and how much it will cost prior to submitting an offer. If the buyer decides to purchase it themselves, the company and specific policy can be decided on after the contract is executed.
If you have further questions about home warranties, please contact me directly and I'd be happy to help!