Home Warranties: What is that and why do I need one?

If you're buying or selling a home, you've no doubt heard the terms "home warranty" and "residential service contracts" thrown around.  Sounds good, but what are they? How do you get one? What do they cover? What do they cost? 

What does a Home Warranty include?

First things first: a residential service contract, commonly referred to as home warranties, cover the repair or replacement of certain appliances or systems that fail due to normal use.  A residential service contract isn't an insurance policy.  They don't insure against losses or compensate against damage or liability that arise from some unknown source.  Instead they repair or replace specified items.  

Let's take a case in point: let's say your dishwasher malfunctions and leaks water all over the floor.  Your homeowners insurance policy may cover the damage to the floor but not repair or replace the culprit - the broken dishwasher.  This is where the residential service contract kicks in.  With a typical home warranty, your dishwasher will likely be repaired or replaced.  

Most Home Warranties cover the home's major systems and appliances.  In Houston, standard coverage typically includes the plumbing, electrical system, heating and air-conditioning systems, kitchen appliances, water heater and garage door opener.  Items such as swimming pools, spas, washers, dryers and refrigerators are usually optional coverage (available for a fee, of course.)  

What does a Home Warranty cost?

Sounds pretty good, huh.  But what's it cost to get coverage like this? In Texas, annual contract fees generally run $365 - $395 for standard coverage.  Of course, you can upgrade that coverage and, if you have multiple HVAC units, additional appliances - think wine chiller - or other "non-typical" conditions you'll definitely want to talk with the residential service contract provider to see what plan is the best fit for you. 

Counting contracts in Texas

1.3 million

Residential service contracts sold in 2012

1.1 million

Service calls placed in 2012

$155.7 million

Value of repairs made under residential service contracts in 2012

*Source: national Home Service Contract Association *

Most residential service contract providers usually charge a flat fee, about $65 - $100, for each request for service.  Of course, all of this is negotiable, so be sure you read the terms and conditions of the contract you're considering before purchase.  Many people are surprised when they find out that the home warranty doesn't cover EVERYTHING.  In addition to being limited to the specific items named in the contract, pre-existing conditions, modifications and code upgrades often are not covered.  

Of course, if you're purchasing a home, talk with your Realtor about asking for a seller contribution to cover or help offset the cost of the first year's coverage.  But remember, home warranties aren't just for new homeowners; they can be a good choice for existing owners or for sellers.

What are some of the benefits of Residential Service Contracts

If you're buying a home, a home warranty grants peace of mind knowing that once thou take possession of your home, you will have a remedy to protect your budget should a covered system or appliance fail.  Whew!

But sellers often also find it's a good idea to purchase a Residential Service Contract when they list their home to ensure that systems and appliances won't break the proverbial bank if problems arise or are found during the showing and inspection of the home.  Even better, they can likely offer adoption of the existing contract for less than what they would pay for a new policy for buyers.  

Where can I find a reputable Residential Service Company?

If you're working with a Realtor, she can likely recommend some companies she trusts and that clients have had good experiences with.  If you're looking for a Home Warranty in Houston, email me and I'd be happy to give you my recommendations.  

You can also take a look at the Texas Real Estate Commission website.  They regulate residential service contract companies and those who are licensed in the state are listed online.  The National Home Service Contract Association, a trade organization for residential service contract companies, is also a great source for identifying reputable companies.