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Is a home warranty worth it?

Before you buy, know what's covered and what's not to avoid nasty surprises.

By MSN Money Partner Sep 20, 2011 9:54AM

This post comes from Jim Wang at partner blog Bargaineering.

 

While walking our dog, Tobey, on a recent morning, I walked by a home for sale that advertised a free one-year home warranty. It turns out that a lot of homes are offering this as a way to differentiate themselves from other homes. It's a way for a house to stand out on the street because you get to put a placard up that screams "Free One-Year Home Warranty."

 

Back when we bought our home, throwing in a home warranty was like a cherry on top. Buyers battled for homes but sellers probably thought throwing in a home warranty could juice up demand even more. What's not to like about avoiding appliance headaches for one year?

 

The question is: Are they worth it? Post continues after video.

What is a home warranty? When you buy a home warranty, you're basically signing a service contract. The contract states that, for the life of the contract, the warranty company will pay for repairs or replacement on a number of appliances within your home. The contract will spell out which appliances it'll cover, how much you pay per occurrence (similar to a deductible), and what is not covered.

 

It doesn't cover structural aspects of your home. So if your roof collapses, that would be covered by homeowners insurance. If your water heater leaks, the water heater would be covered (if you bought that coverage) but the subsequent water damage would be a homeowners insurance matter.

 

Is it worth it? In the six years we've lived in our home, we've had only one incident that would've been covered by a home warranty. Our water heater, which is 20-plus years old, started to leak and needed to be replaced. It's a $400 to $500 job, less if you install it yourself, and I'm sure a home warranty costs more than $80 a year.

 

Of course, depending on how old the appliances are in your home, it might be something you would consider if you can afford the warranty but probably couldn't afford to replace your refrigerator or stove, if it stopped working.

 

In general, home warranties are nice to have when you buy a home, as it protects you for a year from unexpected expenses at a time when you can least afford them, but it's usually not advised unless you have extenuating circumstances. (How much house can you afford? Try MSN Money's calculator.)

 

Note: Home warranties were a subject of a Devil's Advocate post arguing that you should buy that home warranty. There are some compelling reasons in favor of home warranties.

 

That said, if you ask 10 people about home warranties, you'll likely get 10 different opinions on them. Some people think as I do: Put the savings away in an emergency fund to cover those potential problems. Some people think the peace of mind is worth the extra cost each year.

 

In the end, it comes down to doing the math after you get some quotes, and finding the solution for you.

 

More on Bargaineering and MSN Money:

30Comments
Sep 20, 2011 8:20PM
Sep 20, 2011 9:19PM
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We bought a home last year with a 1 year home warranty. The water heater quit on us. Called the warranty people, they called a contractor. After coming back 3 times they decided to replace it. Total time with a defunct water heater? One month. The house has a geothermal ground water source heat pump. This provides heat and A/C. There's a $1500 limit on the warranty to fix these types of units. After about 3 visits to diagnose the problem on this, they decide a "buy out" is in order and mail us a check for $1500. Guess what replacement cost is? $19,000. Don't figure on a home warranty being worth your while. The headaches and number of phone calls to follow up and get someone to fix the issues is not worth it.
Sep 21, 2011 7:05AM
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Do the math?  Why is this such a hard question to answer? We have a newer custom built home  (3 years) with the following "appliances" 2 Carrier 5 ton 14 seer AC systems, 2 85 gallon electric water heaters, an easy water soft water system, security system, microwave, dishwasher, wine cooler, 2 refrigerators, freezer, 2 electric ovens, warming drawer, washer and dryer, garbage disposal, 2 pool pumps and a huge barbecue.  Home warranty per year would be well over $2500, priced with 3 warranty companies all with deductibles.  We do not have a warranty and since 1970 have not had home warranties with any of our homes. Total outlay in appliance repairs in three years equal $122.50 for the washing machine to be repaired. Over a 10 year period we would pay $25,000 plus for home warranty???? Do the math is 100% correct.
Sep 20, 2011 10:53PM
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Our home warranty was a complete waste of money. Our A/C unit died and the company they contracted with misplaced the part and 2 weeks later in 100+ heat the air still was't fixed. We ended up paying out of pocket because we were living in a hotel and the cost was killing us. It was cheaper to replace the unit! Allied Home Warranty could've cared less, even though our home was uninhabitable - it got so hot in there the thermostat couldn't even read the temp - over 120 degrees in there!
Sep 20, 2011 8:55PM
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     Hey Did Karen Datko write this?   What a piece of c&^p.

The author doesn't give any info nor does he pick a side on which he stands.

HHHMMM, I 'll just write 400 words and get paid big money from MSN.

Any tenth  grader could write a better article/commentary.

     Maybe you could have talked with people that bought a house with a

home warranty or maybe talked with people that sold a house with a home warranty?

Or, better yet,  talked to at least one real estate agent who might actually know something.

What happened to actual Journalism?

Sep 20, 2011 10:27PM
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I bought a home in Idaho and I had the seller pay for a 1yr Home Warranty to the company Sensible Home Warranty. It is a complete rip-off. The washer broke in a few weeks. Called Sensible Home warranty got the runner-around. Finally a servicemen called and made an appointment, he never showed-up and never called. Don't ever use Sensible Home Warranty.
Sep 20, 2011 11:44PM
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That's a lot of words to come to a figure it out yourself conclusion.

Mar 6, 2012 12:09PM
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For a person flying "by the seat of their pants" & really cant afford the home theyre in then a warranty MIGHT get them out of a jam. But in my case as a first time buyer I insisted on having the warranty because I knew I might need it. Sure enough the first time It got cold and we ran the furnace we discovered it wouldnt kick off. We had no insulation at all in our house and our return ducts werent even there! Someone had removed them & covered up all the holes & our inspector politely looked directly at the open furnace filter & never once asked himself "wheres the return ducts that go here".

 

So we put in a furnace call to AHS because we had lukewarm heat. It turns out poor heat was caused by outside air getting drawn into the open return on the furnace & diluting our heat plus drafts getting around the doors/windows. Long story short it wasnt covered due to "someone else improperly installing the new furnace". So we had "a brand new furnace" all misconfigured & not working properly, a warranty company that wouldnt pay, & the contractor refusing to work with the warranty co. (AHS) for not paying that same contractor for other work.

 

So in the end I crapped out $2600 to install new ducts then that same contractor who was angry at my warranty Co for non payment on another job did substandard work on MY HOUSE & I had to rip it all back out & do it myself. This is our 2nd year in the house & we still use 2 electric heaters to help our poorly running furnace that the warranty CO wouldnt fix. Also the home inspector just refunded the home inspection fee. He never admitted wrongdoing. Also the seller "Never lived in the perperty" and supposedly didnt know the ducts were fugded up. One big mess. So folks why pay for a warranty if you're going to have to pay for ALL repairs out of pocket anyway! And especially avoid AMERICAN HOME SHIELD like the plague!

Sep 21, 2011 7:47AM
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Don't waste your time or money!  I have one and it sucks.  Had (have) a problem with a roof leak due to extremely poor workmanship by the previous owner. Not covered.  Claimed they would have replaced a worn out roof but not faulty workmanship.  So I could have had a whole new roof because it was 20 years old but because there was a leak due to a moron that knew squat about roofing, not covered at all.  To me that would have been maintenance and the leak would have been warranty.  Americas Best warranty my A$$.  Americas Best scam maybe.  Glad the 3% closing paid for it and not me.
Sep 20, 2011 9:53PM
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NO! home warranties are a rip-off.american homeshield is the worst.when i had a home in arizona,my whole central a/c unit inside and outside went out.AMS would not pay for the replacement.so we cancelled our policy.
Sep 20, 2011 11:33PM
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We've had a home warranty for 20 + years and have generally been satisfied.  Currently we're with American Home Shield in Oregon.  Purchased it primarily to cover an aging heat pump which kept going and going and going ... requiring numerous repairs over the years.  We figured AHS would offer to replace the unit (at 30 years ancient!) but they doggedly insisted on "repairing" the old beast.  We were on the verge of canning AHS when, out of the blue during a "routine" repair, they finally decided to replace the unit.  The replacement, done by a local contractor, went great and saved us thousands.  That was just over a year ago and the system, albeit a lower end unit (Payne) has run flawlessly.  We've had a variety of other appliance repairs over the years which have enabled us to "break even" or better on the cost of the policy.  I suspect the heat pump repair has placed us well ahead in terms of cost-benefit.  So, as insurance policies go, we'd recommend home warranties from AHS in Oregon.  I wish our pet insurance policy was half as good!
Sep 20, 2011 9:18PM
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Where is this writer from?  The cost of replacing a water heater is at least twice what the writer said.  A good quality water heater costs $400 just for the unit.

Sep 20, 2011 10:24PM
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I have had a home warranty for several years..replaced my a/c..out of pocket $800.00 (it would have cost around $1800) the next year I had a problem with my ice maker and they replaced it and then my sink stopped up. I have used it several times and I feel for $400 a year..it is well worth it. My home is updated, but some of my appliances or over 5 years old. They bill me 200 every six months.

Works for me. 

Sep 20, 2011 11:39PM
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I certainly wouldnt advocate anyone getting something they cannot afford. I have 2 year old appliances (warranty only for 1 year) and my diswasher broke, got it fixed for 45$ copay (lot less than I would have had to pay someone just to assess it). Also had some plumbing issues and electric problems. Do you know how much you have to pay an elctrician or plumber just to assess a problem? A lot more than the $45 copay I have. So far, I have no complaints and I am happy with the peace of mind with my Warranty plan.
Sep 21, 2011 9:53AM
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If the seller will pay for it... it certainly is nice to have. If a home has been sitting vacant for months I think a good home warranty is a must.
Sep 21, 2011 11:16AM
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mY DAUGHTER AND SON-IN-LAW BOUGHT A HOME AND HOME WARRANTY AND THE FURNACE QUIT. HOME WARRANTY SAID THE FURNACE WAS OLD AND THEREFORE NOT COVERED UNDER THEIR WARRANTY AS IT HAD REACHED IT 'S SERVICE LIFETIME. SAME WITH THE KITCHEN STOVE. SO, READ THE WARRANTY FINE PRINT BEFORE BUYING AS EVIDENTLY SOME SLIP THIS SERVICEABLE LIFETIME CLAUSE IN AND MAKE THE CONTRACT ALMOST USELESS!!! THIS IS IN MINNESOTA
Sep 21, 2011 12:09AM
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American Home Shield is my provider.   I have it on 3 different properties.   They have replaced central air conditioning systems, inside and out, and various other things.   I am way ahead and it makes an out of town rental condo hassle free.   If something breaks, it is covered either by A.H.S. or the association, or my insurance.   

Sep 21, 2011 12:38AM
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I have a home warranty provided when I bought my home.  It's a nice perk to throw in with closing, I guess.  My problem with this article is if I wanted a definition of a home warranty I could of just looked it up on a search engine.  "Do the math and get some quotes"?  Thanks for the priceless info.  Where should I invest next and should I buy or lease my next car.  Oh, I guess this article answered all my financial questions.  Thanks again.  I feel dumber now.

Sep 21, 2011 10:41AM
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What a dumb article! You may want one, you may not, I don't know?   How did I get any smarter reading this? I didn't. In fact I wasted a minute I will never get back.

I have a 95-year-old Arts and Crafts home and got a home warranty when I bought my house 2 years ago. I got a new dishwasher the first year, a new compressor for my A/C unit after 3 trys to fix it tghe second year and was told I needed a clean out for my sewer that was not covered, since there had never been one.  I spent $1000 and $300 in co-pays, and SAVED over $2500  and didn't have to worry about it getting fixed right.

I have no family ot help me with repairs and I am 61. I will re-up next time, too.

Aug 8, 2013 9:51AM
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If you can get a budget-friendly home warranty that only covers items you specify, it can definitely be worth it. While some may argue it is an unnecessary expense, it can really come in handy if you buy protection for items that your homeowners insurance does not cover. Get the RIGHT plan, and you will be glad you did! You can even build your own home warranty at http://www.totalprotect.com. 

Thanks for sharing your thoughts on home warranties! 
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