FAQ X: Is a Home Warranty a Good Idea?

FAQ X:  Is a Home Warranty a Good Idea?

If you’ve been to a personal electronics or appliance store in the last several years, you’ve more than likely been asked at the cash register something like this, “Would you like to protect your purchase with a Genuine Best Buy Extended Warranty?”  For nearly everything, I say “No, thanks” but for a select few items, I’ll say “Yes, please.”  At the top of that list are “Pre-owned Homes” to steal a phrase from the auto industry.

Home warranties are not required in the state of Colorado.  They are completely optional and can be purchased by either the buyer or the seller or the broker may purchase one on behalf of a client.  Many sellers are happy to pay for a home warranty instead of agreeing to other costly repairs due to concerns brought to light in the inspection process.  Some warranties, if activated during the listing period, begin coverage the moment the house goes on the market and automatically transfers to the buyer upon closing.  Anything that goes wrong with a covered item (water heaters and furnaces are the most popular items), will be repaired or replaced as stipulated by the particular home warranty purchased, less a modest service call fee - sweet deal, right?  So, what’s the catch?

The catch is (as with all forms of insurance) statistics.  The home warranty company is betting that of all the home warranties they sell at say, $475 a pop, a small fraction of those policies will ever be called upon to perform.  Oh, $475, you say?  Absolutely not – that’s a lot of money.  Yes.  It is.  You know what else is a lot of money?  Answer:  the purchase price of your home.  Even on the modest side of things in Northern Colorado an average home sells for well over $200,000.  The home warranty makes up less than two-tenths of one percent of the purchase price.  But what does it really buy you?  Peace of mind.  Peace of mind, that if in the middle of winter (yes, it can get a bit chilly here in January), your furnace goes out – you make one phone call and the service tech comes out to assess the situation and if it falls under the warranty, they put in a new furnace.  That’s peace of mind.

We’ve purchased several properties over the years and with each purchase we had inspections and appraisals completed.  We scoured the Seller’s property disclosure for hints of unseen potential problems. In the end, you’re buying something that someone else has lived in and enjoyed, remodeled, painted, abused,wall-papered, and who knows what else.  For each one of these homes we purchased a home warranty for at least the first year we lived in the place – just for the peace of mind.  We’ve personally seen our home warranties cover the replacement of a dishwasher, hot water heater, and partial payment of a collapsed clay sewer pipe.  None of those items were covered by a standard home owner’s insurance policy even with high deductibles.  The home warranty covered either the entire cost or a pro-rated amount that saved us literally thousands of dollars.