Understanding a Home Warranty

By Brad Litz
Real Estate Broker, Appraiser & Investor
Meridian-Kessler Resident

With an estimated 80% of residential real estate transactions including a home warranty today, it is important to understand what you are buying. As with most insurance policies, it doesn’t matter much until you need to file a claim, but choosing the right policy up front can save you some money and headache later. There are several companies that offer a home warranty, so it is always best to do research and ask for referrals when choosing your policy.

If you are buying a property, the most prudent first step would be to request information on the policies that are available prior to submitting an offer. Most warranty companies offer an array of policies at different price points and it is important to know what policy best fits your new home to make sure that all the systems and appliances are covered. For instance, a washer and dryer are not covered in most basic plans, so you may want to upgrade your policy to include them. If coverage for these items is important and the allowance set forth in your purchase agreement does not cover the upgraded price, you may have to come out of pocket for the difference or go without coverage that you really wanted.

If you are selling a property, offering a policy can give the purchaser confidence in your home and its condition in order for them to move forward in the transaction. If buyer and seller both feel that this gives them piece of mind, then the premium is a small price to pay. As well, it can often lead to a smoother inspection process.

If you are purchasing a new home, it is most likely that a home warranty will not be necessary. There is a structural warranty required by law and since all of your mechanicals and appliances are new, they are typically covered by a manufacturer’s warranty, which you should request from your builder. As well, your builder may offer a comprehensive warranty.
Older homes obviously have a higher chance of systems breaking down, so a home warranty is important. I think it is important to note that most policies will only pay a depreciated amount on an item. So, if the refrigerator is a classic, don’t expect a sleek new one for free when the old one kicks the bucket.

Overall, home warranties are very popular for a reason, they give buyers and sellers confidence when conducting a real estate transaction. Please research the plan that is right for your house and allow for the correct amount in the purchase agreement. If a home is new or has recent updates, please ask for any warranty information on particular items.