First time buyers - What is a home warranty and do I need one?

As you look through listings on-line you might notice that some advertise that the home comes with a Home Warranty; and you might wonder, “What is that all about and do I need a warranty on my new home? “

The easiest way to understand this product is to think in terms of other things that you buy in life. Probably the biggest single purchase that most people make, other than a house is their car. If you buy a new car, it comes with a warranty and you expect that. The best warranties say that they cover everything on the car; they are often advertised as bumper-to-bumper warranties. Of course, when you read the fine print you will see that the car makers are careful to exclude all of the items that wear out in normal use – wiper blades, tires, and such. That’s understandable and you are still covered for the larger items – engine, drivetrain and major systems and components. If your car’s air conditioner compressor give out in the first year or two that is usually covered for a repair or replacement.

The same kind of thing applies to home warranties. They all cover the major systems and items in the home, but there’s also fine print that you must understand. The devil, as they say, is in the details. Below is an explanation of home warranties provided to me by Chris Papinaeu. Chris is the account executive for the Real Estate One Home Warranty program that we provide for our customers. The REO Home Warranty is a private branded offering from HMS National Home Warranty, a leading home warranty company.

"Home warranty" is a marketing term held over from the early history of the industry. In fact, a home warranty is not actually a warranty but a service contract. Generally, a home service contract provides service, repair or replacement on a home’s major systems and appliances, usually for a term of one year.

Basic and optional coverage varies from company to company with some regional variances. Home service contracts are specific and do not include everything in your house, and most do not cover home foundations, walls, structure or finish.

Typical systems that are covered include: interior plumbing, heating system, electrical system, water heater, ductwork, dishwasher, oven, range/cooktop, garbage disposal and garage door opener. Heating and air conditioning systems, refrigerators and washer/dryers may be part of a basic contract or may be options. Spa and pool equipment may also be part of optional coverage.

A home service contract should not be considered a replacement for homeowner's insurance. Where homeowner’s insurance protects the consumer from external forces like storms and fire and theft, home service contracts protect consumers from the unanticipated, and sometimes very expensive

cost of normal wear and tear on systems and appliances in the home. In short, the industry’s services "were born out of the need for household repair that was not in the scope of homeowner insurance."

Repair needs for home appliances and service systems are actually quite predictable. According to the National Association of Realtors®, within the next 12 months, there is a 60 percent chance that a key system in your home, such as the furnace, air conditioner or major appliance will fail, and the cost of the repair will average $900. Sometimes, it can be considerably more than that. For example, according to analysts, HVAC systems "are often some of the most expensive to repair and replace for homeowners and make up one of the primary draws for homeowners purchasing home warranty coverage."