What is a home warranty vs. homeowners insurance?
Homeowners insurance is a type of property insurance that protects the home against damages to the physical structure, to the owners possessions and it offers liability protection for incidents on the property or in the home itself.
A home warranty is a service contract that covers the homes major systems, i.e. electrical, plumbing inside the home, the heating system and the appliances. Any breakdown on any of these systems can be very expensive to repair, so what a home warranty does is make the repair or replacement, way, way less stressful. This is especially true for a new homeowner as they've had to put so much of their money into the purchase of the home, the last thing they want is any unexpected financial surprises! The way a home warranty service contract works is that when something breaks, you contact your home warranty company and they send out a licensed, bonded repair person. There is a flat fee service visit charge, generally about $65 per incident, that the homeowner will pay the repair person when they come to the home. In return, the system or appliance will be repaired or replaced if it is unrepairable. If it needs replacing, there are generally 2 options: 1) they will replace the broken item with a brand new like-quality, like-featured one, or 2) you may take a cash out price and buy and have installed what you want. The cash out price is a set “contractors” price and there is no negotiating on it.
If your newly purchased home came with a 1-year warranty, you have the option of renewing it or not, at the end of the year. To that end, if you decide not to renew, but a year want one again, you can obtain one. Likewise, you can add or take off certain of the “add-on” items, especially if you have purchased a new appliance and it is already under a manufacturers warranty. For instance, I have a home warranty on my own house. A year or two ago, I added pool equipment coverage for my salt water pool as my equipment was about 11 years old. This was an additional cost of about $300 (so my total home warranty price was approximately $700) but when my salt generator went out that summer, all I paid was the $65 service call fee and the pool repair folks put in a new $1800 salt generator. Additionally, earlier in the year, my central AC was acting up so I called in and ordered service, paid the service call fee and the AC folks that came out said the broken part and labor would have been $400-500 without the warranty.
I have one client who told me that they renewed their home warranty every year for the 14 years they owned the home because in their words “every year one thing broke that would have cost way more to repair or replace than the cost of the warranty.”
A few years ago, my client purchased a property where the Seller included a 1-year home warranty with the purchase. My client didn't pay any attention to the warranty until the 30 year old furnace broke 3x that first winter and after the 3rd visit, the furnace folks said the furnace needed replacing. My client opted for the cash out so that I could put in the one I wanted. A ditto situation arose with the dishwasher right before they hosted their first Thanksgiving in the house. The new dishwasher was installed about 2 days before "turkey day" Whew!
If you are a Seller, you can’t go wrong by offering a 1-year basic home warranty with the sale. I don't know why this happens and It is crazy but so many times it is like the house knows it has been sold and something totally unexpected that the Seller never had any trouble or issue with will break. A $65 service fee for repair or replacement is a lot easier to deal with than an angry Buyer.
If I am representing a Buyer and the Seller doesn’t offer a home warranty, I always buy my client one as a house warming gift…not as delicious as a lovely dinner, but certainly a longer lasting gift!
If you would like more information about home warranties or about real estate in Marin County, please give me a call.
I hope you find my posts interesting and informative…let me know of any special subjects you'd like to read about!