There’s a lot to think about once you close on a house. For example, what color should you paint the living room? How do you best utilize the extra bedroom? And should you plant a tree right away or wait a few years?

Then there’s the not-so-fun stuff to consider after moving into a new residence. After likely spending a significant amount of money on a down payment, escrow, and closing costs, chances are you won’t have much financial wiggle room for a while. So how would you cover the unexpected repair costs of a broken-down refrigerator, air conditioner, or water heater?

This is where a home warranty comes into play. In contrast to homeowners insurance (which covers your home’s structure and belongings in the event of a fire or nasty storm), a home warranty covers repairs and replacements on systems and appliances. As a new or soon-to-be homeowner, you may think of this policy as an extra layer of protection.

Let’s take a closer look at home warranties and whether or not they’re worth the expense.

What is a home warranty?

Home warranties are often mistaken for policies that protect the insured from loss. Keep in mind that a home warranty plan does not replace your homeowners insurance, whether you choose a one-year program or more extended coverage. It may be worth exploring this type of policy if you don’t have the immediate funds to cover a surprise expense such as faulty electrical work or a broken boiler. 

On the surface, a home warranty seems like a no-brainer. Yet many homeowners find themselves trapped in expensive service contracts that don’t even offer much of a benefit. That’s why we recommend shopping around and paying close attention to what is and is not covered.

How much is it?

According to ConsumerAffairs, the average cost of a home warranty contract ranges between $300-$600 a year. The cost of your plan will ultimately depend on where you live and the level of coverage you select. It may be a good idea to buy additional coverage if you have a pool, well pump, or a number of high-end appliances.

The cost of the plan isn’t the only thing you’ll have to account for in your budget. Your warranty provider will also charge a service call fee each time you file a claim that ends in a technician coming to your home. Think of this as a deductible with your insurance — the technician requires payment, even if you consider the repairs to be minor.

Between service call fees and the cost of the plan, you could end up spending upwards of $1,000 a year on a home warranty. With that in mind, should you still purchase one or put that money toward something else in your residence?

Is it worth the cost?

It depends on the homeowner and the policy itself. If you would sleep better knowing you have a financial safety net for unexpected home repairs, a warranty probably makes sense. There’s also the fact that a home warranty often pays for itself after one large claim.

Unfortunately, many homeowners see their service plans as a waste of money. Part of their frustration may stem from not knowing what their home warranty does and does not cover. So when they schedule a time for a technician to diagnose and fix a problem, they might just assume they’ll only have to pay the service call fee. Then they’re baffled when the technician tells them they have the minimum coverage limit and, as a result, must pay the remainder of the repair costs out of pocket.

The importance of working with quality contractors

This might be the most crucial part of the home warranty debate. If you’re paying $50 a month for your plan, you obviously expect professional service when the time comes to contact a technician. Just be aware that some home warranty providers opt for the cheapest contractors whenever possible. As you probably know through personal experience, cheaper doesn’t always equate to good, quality work.

Do yourself a favor and only work with reputable contractors, regardless of whether or not you have a home warranty in the future. The last thing you want to do is shell out hundreds of dollars a year for coverage only to pay twice for the work to be done. 

Find a reliable real estate agent

Ready to make your homeownership dream a reality? See what the team at American Home Agents can do for you!