Is a Home Warranty a Good Investment?

There are typically two types of home warranties that people will purchase for their home. The first is one that covers any major systems or repairs for the first year and the second is an annual renewal type contract which continues to keep the coverage active.

If you are buying a new home, they usually come with warranties from the builder, so there would not be a need to purchase one from a third party. If you are buying a home where you don’t know the history such as a short sale or a foreclosure, a home warranty is a good thing to consider.┬áConsidering that people who experience foreclosures and short sales are often in financial crisis, it is not unreasonable to think that they might have neglected some home maintenance or even major repairs.

While we are on the topic, having a home inspection is definitely a great investment, but when you buy distressed real estate you often do not have the option to get a home warranty as the property is being sold as-is.

If you are a “Harry Homeowner” type and you are good with home repairs and maintenance, then you might not think you need a home warranty, but you need to consider the out of pocket costs of things like replacing air conditioning units or furnaces (and then consider the age of these systems).

If you simply want peace of mind (like me), then keeping an ongoing home warranty in force is probably a great idea. It’s kind of like insurance, it’s better to have it and not need it than to need it and not have it, especially when you consider the costs ($250-$400 per year on average).

Most importantly make sure you know exactly what is and is not covered and what you will have to pay to make a claim as some home warranty companies have a deductible.

Lastly, if you are buying a home, it is not uncommon to make this a part of the negotiation by asking the seller or your agent to cover the cost of the home warranty for the first year.