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Are Home Warranties Worth the Cost?

By Michele Lerner

Are home warranties for investment properties worth it? If you own an income generating property is it a good idea to buy a warranty? A home warranty covers many of the property's crucial systems and appliances, whether it's the air conditioning or the stove, and it's generally a good idea to have a warranty in place as a landlord and property owner.

Many times home sellers are often encouraged to spend a few hundred dollars to purchase a home warranty which will cover some systems and appliances in their home while it is on the market and then will cover the homebuyers for a certain period of time, usually one year. Home buyers are often encouraged to ask their sellers to purchase a home warranty or even to purchase one themselves. These days, everyone wants a little insurance for at least a period of time when they buy something, and especially when it's a home.

Investors sometimes consider purchasing a warranty to protect their investment in a property. Typically, warranties are for one year and are renewable.

But is it worth spending $300 or $400 on a warranty for a property? Some homeowners think it is, and compare it to the warranty which usually comes with a new home. Others are far less satisfied with the service they receive if they need to work with a home warranty company. A home warranty for a property can save you money and let you sleep a little easier as a landlord and investor. The key though is to choose wisely when selecting the warranty company you'll work with.

Unhappiness with Home Warranty Companies

For the fourth year in a row, home warranty companies earned the worst grades in 2008 from Angie’s List members, according to an analysis of consumer reports collected by the country’s leading provider of ratings and reviews on local service providers.

Angie’s List reported that nearly 55% of the reports on home warranty companies were an overall “F” or a “D”. The complaints usually were caused by misunderstandings about what the home warranty covered, poor customer service or dissatisfaction with the contractor sent to correct a problem.

When a Warranty Works

On the flip side, a home warranty can have a positive impact if purchased for a home with older appliances or heating and air conditioning systems in an older home. In some cases, having a home warranty has allowed a water heater or other appliance to be repaired or replaced during the listing period, saving the sellers money when the least wanted to spend it. Homes with relatively new appliances and systems are less likely to need a home warranty.

The biggest problem with home warranties is typically that people don’t understand what is covered and assume that a malfunctioning appliance will be replaced. Usually that one appliance that breaks down is the one not covered.

More often, the item will be repaired so that it lasts at least until the warranty runs out.

Another problem is that home warranty companies work with their own list of contractors and won’t normally allow the homeowner to pick another contractor. The home warranty contractor is the one who decides whether to repair or replace an appliance.

A typical basic home warranty program covers interior appliances and systems such as heating and air conditioning, electrical wiring, plumbing, the dishwasher, water heater, stove, oven and garbage disposal. Not all warranties cover the washer and dryer or the refrigerator, but this coverage can be added, along with coverage for swimming pool and whirlpool tub equipment. Warranty programs do not cover structural elements of a home.

Tips For Buying A Home Warranty

  • Real agents can recommend a good home warranty program, one that their clients have had good experiences with
  • Make sure you investigate the warranty program ahead of time by researching the record on Angie’s List, the Better Business Bureau and the state attorney general’s office
  • Check to see if the company belongs to the NHSCA (National Home Service Contract Association)
  • Get a copy of the contract to review before purchasing the warranty and always read the fine print
  • If you are concerned about a particular system or appliance in the home, make sure to check that it is covered or have it added to the list of what's covered
  • Find out if you can get a credit toward a new appliance if you prefer to replace one instead of repairing it

 


Michele Lerner, a real estate expert and freelance writer with 20 years of experience, is the author of “HOMEBUYING: Tough Times, First Time, Any Time”.

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