Do I need a home warranty?

5/18/2010

In my opinion not every home needs a home warranty.

For example, if your home is brand new then you probably get a builders warranty for at least the first year. If you purchase a resale home then it may make sense in cases to look into purchasing a home warranty. Some Realtors and clients swear by home warranties. I tend to lean in the other direction.

In my line of work I have often seen the warranty company either not cover everything that they said they would or make you jump through so many hoops that it is not worth it. An example of this is a client owned a home built in 1959. From about 1994 she started using a home warranty. Every year she renewed this until she finally sold the home in 2009. During that span of time she had two big ticket claims. One was for an a.c. unit and the other was for a furnace.

Most people reading this are probably thinking "she got her monies worth then". At first glance I would think the same thing, but upon taking a closer look at the numbers below you can see what a bad deal she got.

15 years at an average of $400 per year equals $6000. Even $6000 over a long period of time would be ok, but then comes all the other issues. This a.c. was clearly at the end of it's life in 2004, yet they still refused to replace the unit. It took 11 more service calls at $55 a piece before they finally agreed to install a new unit. This added up to $550 on top of all the time and frustration wasted trying to get them to do what they promised in their initial contract. When it got replaced they installed a smaller unit based on square footage only and didn't take anything else into account. To top that off they made the client pay for the crane. This cost the client over $1000. By the end it cost my client spent around $8000 for coverage that I could have paid $4000 for.

I would only recommend getting a home warranty in a few occasions. The first is if you don't have the money to cover a major expense like an air conditioner or heater. The second is when your buy a resale home and the seller is willing to add that in as part of the purchase contract at no cost to the buyer. The reality is that you can find more reliable vendors through friends or networks like Angie's List!

Of course, this is just my opinion on the topic. If you have any examples (good or bad) that you would like to share I would love to hear them!

5 Comments

Shelly Roy link

5/19/2010 02:22:54 pm

Hi Don,

Just wanted to comment about the features and benefits of a home warranty.

Most home owner's especially in today's economy, do not have a savings account to replace an A/C unit, hot water heater or even a leaking faucet.

The city of Phoenix, Neighborhood Stabilization Program, Your Way Home Az,and even Freddie Mac and Fannie Mae are requiring that ERVERY transaction includes a one year home warranty and the City of Phoenix is requiring three years of coverage!

This is just one more way to help the home owner in the event of a failure to a system or appliance.

I would be delighted to meet with you your team to discuss the value of a HWA, 13 month home warranty.

Very truly yours,
Shelly Roy
Account Executive
HWA - 602-570-8894

David Pruitt link

5/19/2010 03:34:40 pm

Shelly,

Thanks for your response. I agree with you on several of your points, however, I still feel that as a whole home warranties are not for the majority of people.

As I mentioned in our blog, they are a great idea to have in order to cover an a.c. or hot water heater. I do not, however, think they are necessary for a leaky faucet. Of course this is just my personal opinion.

All home warranties have a co-pay and this co-pay would certainly exceed the cost of fixing a leaky faucet.

For some it is just a good insurance policy and if you have $300+ to spend each year and that is something you feel there is value in then by all means go for it.

The reality is that if you have $300+ to spend on the warranty each year, and you are not getting the use out of the warranty then it makes no sense to keep paying money into that.

Another thing I don't like is that the consumer has no choice of which company is being sent into their home. I feel that home warranties, like Health Plan HMO's, should give the consumer a few choices of who they could use, and not just select someone for them. I also feel that they should look at a varying co-pay schedule based on the type of repair or estimated cost. For instance, if I called in a leaky faucet my co-pay would be $10 and if I called in a major a.c. repair the cost would be $50. I just feel that this offers a better product. Also it makes more sense.

In property management we have over 550 properties and of those properties about 80 have home warranties. We spend probably 5 hours a week talking with different home warranty companies about issued we have on our properties. The biggest issue I have with each of these properties is deciding whether it is worth it (money wise) to send the home warranty based on their co-pay or send our handyman. Most times our handyman comes in well under of the co-pay. Plus if there is any additional issues he can address those too instead of having to call the home warranty and have them send out a separate vendor. If your company offers something similar please let us know.

All in all I feel that there is value to be found in home warranties for certain situations. Like any purchase, I feel that people need to stop and ask if this is something that they will see a return on their investment. If the answer is yes, then I am 100% behind them.

We are always open to hearing from different vendors and companies. If you feel that there is further insight that you could give us on this topic please feel free to contact us to set up a meeting.

Thanks,

David Pruitt
West USA Realty
602-942-1410

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Do I need a home warranty?

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