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I'm a first-time homebuyer, and one of the stipulations of the down payment assistance program I have is that I have to buy a home warranty (which covers appliances, plumbing, roof, etc in case of failure due to normal wear and tear or accidental damage). The house we are buying was foreclosed upon but is in a good neighborhood, built in 1987, and the inspector did not find anything wrong with it.

I don't have a choice in the matter, but for the purpose of this question lets say I do. Is it worth the money to purchase the home warranty?

EDIT (7/31/2013): I decided to update this question with our experience owning a home warranty.

When we decided on a home warranty company, we specifically picked one that a) had been around a while and b) had good thrid-party reviews.

A month ago, our air conditioning went out on a Wednesday. Phoenix in the summer is not fun, and we have small children, so we did end up moving to a hotel and then to my parents' house.

The home warranty company (HWC) had the first contractor out that Friday, and they determined that the A/C needed to be replaced due to a busted compressor. The HWC agreed and sent out for a new unit.

However, the first contractor did not have the equipment (specifically a large truck) to actually pick up the unit, and it took them two days to find a contractor that did have said equipment. That contractor had to make their own inspection, came up with the same conclusion, and (eventually) got our new A/C installed.

It ended up costing approx $1000 US for things like a crane rental and sheet metal, which is annoying but much cheaper than paying for the new unit ourselves.

What struck us is that the HWC didn't attempt to do a fix; they trusted the opinion of both the contractors and immediately had the unit replaced.

All of which is to say, if you want a home warranty, go with a reputable company. The fact that we chose this particular company for the warranty ended up saving us quite a bit of money.

  • 1
    As a two-time home buyer, I really want to go back through an un-upvote all the answers that say not to do it. I've done it on both homes, and it has been worth it both times. – warren Oct 13 '16 at 13:26
  • As with every type of insurance...there are good insurance policies and there are bad ones. Most insurance policies are not good policies. – Ross Oct 17 '16 at 16:19
  • In my experience, home warranties are things the seller offers to pay for to reassure nervous buyers. That's a very different value proposition, and very different buying psychology, than if you were purchasing one for yourself. – keshlam Oct 18 '16 at 0:33
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As a general rule no. Those companies are notorious for:
1) Arguing with you endlessly that any claim you make isn't covered.
2) Going out of business leaving you with a worthless warranty.

The exception is when you are selling a home. Buying a transferable warranty may be an effective sales tactic to set the buyer's mind at ease about potential problems with the house.

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    We got one for "free" with the house we bought, and we ended up using it, but after looking at the very low benefit caps, I would never buy one. – C. Ross Aug 1 '13 at 17:19
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If you're really strapped for cash, you can get one on the off-chance the furnace or air conditioner goes. But if you do have the cash to self-insure against these kinds of things, I wouldn't bother with the home warranty.

Here was our experience. Our daughter was only a few months old, and the air conditioner went in June, in Virginia. We called in the warranty. They came out, tried the cheapest fix they could to fix the leak. It didn't work again in two days. Two weeks later, they try again with the next cheapest fix. (By this point, we had gotten a window unit for our bedroom.) It didn't work again in two days. Two more weeks later, they finally got authorization to replace the unit. They replaced it with the cheapest one they could, and wanted to charge me $75 to haul the old one away. When I said no thanks to that extra service (I was calling from work at the time), the guy ended the conversation in a huff, walked away from the phone and drove off. I later found out (when I called a reputable HVAC guy) that they didn't even hook the thing up correctly!

What happens is the contractors get squeezed by the warranty company at every turn. These calls get low priority, and the quality of service is as low as they can get away with without violating the terms of their contract with the warranty company.

For the big stuff, it's better than nothing, but not much better. Check to see that the big stuff is still covered before buying it at all, and drop it after getting a payout (like we did).

  • I'm in Phoenix, and if the air conditioning went out in June, when its 110 degrees F out, we'd have to move into a hotel! Yikes. – Matthew Jones Oct 14 '10 at 15:57
  • @MatthewJones - how did people live in Phoenix before the AC was invented? – warren Aug 1 '13 at 13:30
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    @warren: they did not go outside for four months of the year. Actually, we still do that. :) – Matthew Jones Aug 1 '13 at 13:44
  • @warren swamp coolers? – Michael Oct 13 '16 at 1:36
  • @Michael ... seems like ice would be hard to come by in Arizona in the summer time pre-refrigeration / electricity – warren Oct 13 '16 at 1:59
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Updating this question with a report from Clark Howard:

http://www.clarkhoward.com/news/clark-howard/homes-real-estate/home-warranties-not-worth-paper-theyre-written/nDYMR/

Of course everybody is right so far...

Home warranties not worth paper they're written on

Home warranties aren't worth the paper they're written on, but that hasn't stopped homeowners from buying them by the millions. Nor does it negate their effectiveness as a tool you can use to sweeten the pot if you have to sell your home in a tough market.

The Chicago Tribune reports that 3 million homeowners bought home warranties last year. Yet at the same time, for six years running, home warranty companies have led a list of the most complained about companies in America out of 500 different categories tracked by AngiesList.com.

Basically the point he is trying to make is that home warranties aren't worth it (by and large) for the average home owner. However, if you are selling a home, offering to pay for a warranty for one year for the new home buyer is a sweet incentive for selling your house.

At first, there seems to be a contradiction, but not in actuality. If you expect a home warranty to serve you, statistically it probably won't. There are success stories; there are just more horror stories. But just like any sort of advertising cost or other sunk cost when selling your house, having a warranty to give to your new buyer will perhaps help you sell the home faster and for more money.

It doesn't mean you believe in the quality of the warranty, but for your buyer, if they never use it; meh. If the use it and it works; hooray! If they use it and it doesn't work; oh well, at least it didn't cost them anything.

Offering it to your buyer is akin to offering them a free piece of art. Maybe they like it, maybe they don't, but it was free!

  • In the interest of "I badger everyone about this", can you summarize what he says a bit in case the link goes dead for whatever reason? It's a good post, so it'd be great to have the information here too. – John Bensin Aug 1 '13 at 3:05
  • Recent Badges [[THE BADGER]] - @JohnBensin – MrChrister Aug 1 '13 at 4:18
  • Great summary. Reading posts like this make me happy that at this stage in my life, I write one check to my landlord to have a roof over my head. – John Bensin Aug 1 '13 at 11:11
  • meh. if you are selling your home and buying another one at the same time it's a wash ... you're buying a potentially useless warranty for your buyer, but also getting one for your new home. – Michael Oct 13 '16 at 1:38
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Warranties are usually sold at 60-90% margin. They are just about always a bad deal.

If you are forced to buy one, negotiate on price, and be wary of realtor or mortgage broker recommendations.

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Don't confuse a home warranty with homeowner's insurance. Insurance will cover disasters. Warranty will cover lesser repairs that insurance doesn't cover.

You can warranty your own home with a liquidity fund. Stash 1-3 months of salary in a savings account that you can tap out at any time. Water heater blows? Just call a plumber. Leaking roof? Call a roofer. No need to argue with a warranty company for reimbursement.

Chances are, you will spend less on warrantable repairs than the cost of the warranty itself. If you're handy, it'll be even cheaper.

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    That last point is especially true when you consider that ever covered repair that the home warranty company pays out on still costs you the "trade service call" fee which is typically in the range of $75. For minor repairs you might do it yourself or find a handyman who will fix it for not much more than that, without paying a yearly fee. – Michael Oct 13 '16 at 1:40
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There seems to be a contradiction here:

Home warranties not worth paper they're written on

and:

What struck us is that the HWC [...] immediately had the unit replaced.

There is a huge difference when you buy the insurance yourself and when a bank forces you to buy one. Because in the latter case, the insurance is not for you, it's for the bank to protect their collateral (which is your asset as well). It becomes obvious when a claim comes up, because the insurer is not negotiating with you, it's negotiating with another large financial institution. And as far as the stereotype of banks being ruthless behemoths goes, in this case you happen to benefit from being on the behemoth's side and the insurer simply can't brush off a bank as much as it can brush off a person like you.

As you've put it, a house in Phoenix without AC is not worth much, so the bank could not let that happen. Because in case of another foreclosure they would have to fix the AC anyway.

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I have bought and sold 18 homes. Yes it sounds like a lot some were flips, some turned to rentals and we have moved many many times. I have had home warranties when the seller offered them. In my experience the warranty company does as little as possible.

For example, hot water heaters; you call the warranty company because the hot water heater is making ticking noises, and its running the gas all the time and you still can't take a 5 minute shower with out running out of hot water. These are all signs that the water heater is full of slide and its gong to blow and flood where ever it happens to be. Will you get a new hot water heater? No, you will pay the $75 for the service call the warranty company will not replace it because "it still works". Now after it has flooded you basement or garage, front hall or where ever then they will replace it but not pay for any damage that has occurred.

Same for other things. You can pay that service fee over and over for some slap stick repair that after all the fees and hassle of missing work to wait on the repair person well it would have been cheaper to just pay for a replacement.

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