Are Home Warranties Worth It?

NEW YORK (Zillow.com) — Home warranties have been around for decades but have just started to be widely purchased in the past ten years. They are often used in sales transactions as a kind of “insurance policy” that the seller can provide for the buyer. The theory is that if something goes wrong with a covered item — appliance, electrical, plumbing, etc. — the buyer will call upon the insurance policy instead of blaming the seller. While this sounds great in theory, the general policies have some significant limitations and issues.

For example, home warranty companies could have customer service issues that should cause a buyer some concern. However, to be fair, much of this comes from a common misunderstanding about what is actually covered. This happens because few people who receive the policies actually read them to find out what is not covered – like pre-existing conditions, or certain appliances in the basic policy. Of course, some complaints result from companies refusing to cover certain items and hope that people will give up trying, but it should be noted that some of these claims are just plain dubious.

Which leads to the big question: Are home warranties worth the $350 – $500 per year?

The answer is, it depends.

There are plenty of people who make claims, get paid out, and are happy with their service. But, there seems to be a lot of people who are not very satisfied.

Because the most common way for someone to be introduced to a home warranty policy is typically at the purchase of a property, let’s address that first.

Seller’s Side – If you’re selling your home, you might believe that offering a warranty is a good marketing tool to get the property sold. This is the typical pitch from an insurance company. And if something breaks after the sale, the new owner can make a claim on the policy. It’s estimated that about 80% or more of residential sales come with a home warranty policy. And if the seller feels more comfortable with this “insurance,” then it’s a small price to pay for that piece of mind.

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