Have you ever heard of a home warranty? I’m sure that you’ve been offered an extended warranty when you’ve purchased any large electronic items, such as a TV. A home warranty is the same type of extended warranty, only it’s for your home.

Here’s how a home warranty works.

This extended warrant usually costs between $400 – $500 for one year. And before you ask, it can be renewed. The items protected by the warranty will typically cover all appliances, such as refrigerator, stove, dishwasher, washer, dryer and microwave. Additionally, coverage will be for the hot water heater and the heating and cooling systems. Should any of the covered items cease to function properly within the covered period, simply call the warranty company.The home warranty company will charge you a small copay, which is usually less than $100. A technician will be sent to your home. The technician (repair guy) will either repair or replace the item, at the home warranty company’s discretion.

Cost Effective?

It may not be cost effective to have an extended warranty for many of the covered items at this cost. After all,  a counter top microwave can be bought for under $100. Furthermore, a built in microwave can be found for less than $200. However, a good refrigerator can easily cost more than $2000. The heating or air conditioning systems? Those will cost even more.

The Good

This is an insurance policy. By paying the premium, you can reduce your financial exposure. However, electronics stores push the extended warranty for a reason. And that’s because it’s a money maker for them. Will it cost them to pay for covered repairs? Of course it will. However, the rates are based upon historical data that tells them how much they need to charge. This allows them, on average, the financial earnings they need to survive in this business.

If you’re buying a home, and it has older appliances and / or an aged heating and cooling system, you should consider purchasing a warranty. If the home has newer appliances which are under the manufacturers warranty, a lower cost policy that covers for the heating and cooling is available. Additionally, you can often purchase a service contract through the utility companies.

The Bad

Many people are under the impression that they can use the warranty to replace older appliances with new. Sorry, but that’s not how this works. They’ll fix a broken appliance if possible. They’ll replace if it costs them less than to repair. There are many companies that offer home warranties. Search the web and choose one that seems to be okay. Don’t forget to read reviews. Also, some companies have an initial period where the warranty doesn’t begin coverage until 30 or 60 days after the new owner buys the home.

Bottom Line

A home warranty can be good. When buying a home, many people put all of their available cash into it. And if something expensive fails, it may be a financial hardship. This is a possible way to avoid that dilemma.

However, if you’re willing to take your chances, you can do that also.

Hey – here’s another idea. If you’re purchasing a home, we always try to get the sellers to pay for our client’s home warranty. This is just one of the many ways we try to help our clients. To learn more, contact Bunny and Art Reiman – Realtors.