Evaluating the Impact of a Home Warranty on Home Value

A home warranty serves as a safety net, it covers the repair or replacement of many home appliances and systems that inevitably wear out over time — so you know you won’t be responsible for the full cost of replacing expensive equipment.

However, the benefits of aligning with a home warranty company extend beyond mere peace of mind. In the dynamic landscape of real estate, the value of a home is not just in its aesthetic appeal or structural integrity but also in the assurance that comes with knowing unplanned repairs won’t throw your finances into chaos.

In this article, we take a close look at home warranties – including what they are, and how exactly getting one could impact the value of your home.

1. At a glance

1. A. A home warranty is a contract that covers systems and appliances in your home from breakdowns from daily wear and tear.
2. B. Home warranties differ from homeowners’ insurance, which covers your home from liability and disaster.
3. C. The average home warranty contract costs between $300 and $600 per year, with options of monthly payments.
4. D. A home warranty can increase your home value by 1%.

2. Understanding Home Warranties

Not to be confused with home insurance, which covers damage from unexpected events like fires or natural disasters, a home warranty is a contract between a homeowner and a home warranty company that promises to repair or replace appliances and systems within your home that fail due to everyday wear and tear.

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3. Difference Between Home Warranties and Homeowners Insurance

When navigating the waters of homeownership, it’s easy to get a little mixed up between a home warranty and homeowners’ insurance. They might sound like nearly interchangeable terms, but they are anything but.

Homeowners’ insurance is the big umbrella that shelters you from a storm — literally and figuratively. It covers damage from fires, storms, theft, and other major events that can make a serious dent in your home and wallet.

It’s not just about the structure itself; homeowners’ insurance also extends to your personal belongings and offers liability coverage in case someone gets injured on your property and sues.

A home warranty, on the other hand, covers the repair or replacement of appliances, like the heating and cooling systems, plumbing, and electrical systems in your home. Dishwashers and furnaces are used every day, and through normal wear and tear, eventually need to be repaired or replaced.

While homeowners’ insurance covers you for what might happen, a home warranty takes care of what will happen, given enough time and use.

In essence, homeowners’ insurance and home warranties complement each other, covering different aspects of home protection. One shields you from the financial fallout of unexpected disasters, while the other smooths over the bumps of home maintenance. Together, they offer a more comprehensive safety net.

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4. What Does a Home Warranty Cover?

A home warranty covers systems and appliances including your home’s:

1. A. HVAC system
2. B. Plumbing
3. C. Electrical systems
4. D. Water heaters
5. E. Major appliances like refrigerators, dishwashers, and ovens

Some plans can be tailored to your needs, with additional coverage options for items like pools, spas, and septic systems.

5. How much does a home warranty cost?

A home warranty costs anywhere from $300 to $600 per year, depending on the level of coverage chosen. Additionally, there’s a service fee each time a repair person is dispatched to address a covered issue, which can range from $75 to $125. Some companies require the annual fee to be paid up front, while others offer monthly payment options.

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6. How long does a home warranty last?

A home warranty typically lasts for one year from the start date, serving as a one-year contract that homeowners can choose to renew annually. During this period, it offers peace of mind by covering the repair or replacement costs of many of the home’s major systems and appliances that fail due to normal wear and tear.

Near the end of each contract year, homeowners usually have the option to renew their coverage, allowing them to extend their protection year by year. It’s worth noting that terms and conditions, including the length of coverage, can vary between different home warranty providers, so it’s a good idea to read the fine print and understand what you’re signing up for.

7. Will a warranty help you sell your home?

Potential buyers may find it comforting if a home warranty is already included in the purchase contract. Let’s take a closer look at how potential buyers may perceive the value of a home warranty.

1. A. Extra assurance: Prospective buyers may find the prospect of handling repairs and replacements daunting. Knowing that a home comes with coverage for major systems and appliances can tip the scales in favor of one property over another.
2. B. Turn-key appeal: In today’s fast-paced world, the concept of a turn-key home — one where buyers can simply turn the key and start living without immediate concerns for repairs — is increasingly desirable. A home warranty lets potential buyers know that the home they are considering is cared for and that the sellers are invested in ensuring a worry-free handover.
3. C. Better for the seller: Offering a home warranty can also be a strategic move for sellers. As a seller, it may give you the upper hand in negotiating, as you can firmly stand behind the condition of home systems and appliances. In essence, a home warranty can be a testament to the care and maintenance of the property, making it a more enticing buy.

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8. The Impact of a Home Warranty on Home Value

According to a study conducted by American Home Shield, homes with warranties were on the market an average of nearly 11 days less and sold for more than $2,300 higher than homes sold without a home warranty.

Furthermore, the average sales price of homes with a protection plan was $254,682; while those without sold for an average of $252,368.

These differences in value can be attributed to:

1. A. Enhanced Appeal to Potential Buyers: The promise of reduced risk associated with unexpected repair costs can make a home more attractive.
2. B. Negotiation Leverage in Sale Transactions: With a warranty in place, buyers may be less inclined to request price reductions for future repairs or replacements, as the warranty covers many potential concerns.
3. C. A Perspective on Value Addition: Real estate professionals often cite that the perceived value and peace of mind a warranty provides can justify a higher asking price.

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9. Disadvantages of Home Warranties

While there are plenty of benefits to having a home warranty, as with anything, there are some disadvantages as well. Let’s have a look at the most important:

1. A. Claim Denials: Homeowners sometimes find that their claims are denied based on the warranty company’s determination that the issue was pre-existing, due to improper maintenance, or outside the scope of coverage.
2. B. Service Delays: Another point of contention is the wait times for service. When a covered appliance or system breaks down, the urgency for repairs can clash with the warranty company’s timeline, leading to inconvenient delays.
3. C. Quality of Repairs: Some homeowners express concerns over the quality of repair work. Warranty companies contract with various service providers, and the quality of service can vary, leaving some homeowners dissatisfied with the repairs or replacements.

Despite these criticisms, many homeowners find substantial value in their home warranties. The key lies in choosing a trustworthy home warranty company, setting realistic expectations, understanding the coverage details, and viewing the warranty as a budgeting tool rather than a catch-all solution.

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10. Choosing a Home Warranty Company

Choosing a home warranty company is akin to picking the perfect balance of coverage and cost. Here’s how to zero in on the best fit for you:

1. A. Identify Your Needs: Pinpoint what appliances and systems you need covered to target plans that match your priorities.
2. B. Compare Options: Don’t settle too quickly. Compare different companies, focusing on plan options, coverage specifics, and exclusions.
3. C. Dig Into Details: The fine print matters. Look for limits on coverage, service call fees, and how the company handles replacements and repairs.
4. D. Scout Reviews: Customer feedback and ratings on sites like the BBB can offer insights into a company’s service quality and reliability.
5. E. Understand Claims: A smooth claims process and responsive customer service can make a world of difference.
6. F. Evaluate Cost vs. Value: The cheapest plan isn’t always the best. Assess the coverage you’re getting for the price to ensure it meets your needs without unnecessary extras.
7. G. Check Company Reputation: Stability and a solid reputation in the industry can be a good indicator of reliability and service quality.
8. HLook for a Trial Period: If available, a trial period can give you a safety net to reassess your choice without penalties.

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Conclusion

While a home warranty may not directly inflate a property’s appraisal value, its influence extends beyond mere numbers. It touches upon the psychological comfort of potential buyers, the appeal of a well-maintained home, and the strategic advantage it offers sellers in a competitive market.

A home warranty serves as a testament to the care and maintenance invested in a property, offering potential buyers peace of mind and assurance against unforeseen repair costs. This assurance can make a significant difference in how a home is perceived, potentially making it more attractive and desirable in the eyes of the buyer.

Ultimately, a home warranty can be a valuable asset, offering peace of mind and financial protection against the unforeseen. By approaching this investment with eyes wide open, understanding both its limitations and its potential, homeowners can navigate the intricacies of home warranties with confidence, finding in them a reliable resource in the stewardship of their homes.