Are Home Warranties Worth It?

Jamie: 00:00:01

Welcome to Thoughts from the Crawl Space, a podcast where our goal as home inspection experts is to support and serve our community.

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Hope you all are doing well out there, hope your homes are doing well, nothing's breaking down and everything's going like you planned, right? Well, that doesn't always happen with your car or with your home. So today we're going to talk about home warranties. Are they worth it?

And this is from an inspector's perspective. We've seen kind of the both sides of it and we do offer a 30 day free home warranty with the option to purchase if you so wish.

But that's for another topic, another day maybe. So let's look into some stats on home warranties. The whole crux of this podcast is are home warranties worth it? Are they in certain cases?

And maybe they aren't worth it in other cases. So let's take a look at it. The average homeowner spends on average three to six thousand dollars per year on maintenance. Have you thought about that?

Maybe that's not true for you. Maybe you have deferred maintenance. That's going to end up costing more.

Obviously this varies by home, by size, where you live, you live on, you know, one of the more expensive markets in the world and you're going to be spending a little bit more, whereas you're more of a do it yourselfer. You're probably not even close to that amount.

So, but just keep that in mind as we proceed with this discussion, is that 3 to 6,000 per year is average spent on home maintenance. A common rule of thumb is that annually you're going to spend 1 to 4% of your home's value for maintenance. So let's go on the low end of that.

If your house is a $100,000 house, which is getting harder and harder to find, roughly you would spend $1,000 a year on maintenance.

Now, you could say that if you have $100,000 house in this market, you're probably going to be spending more on maintenance because it's a little older and maybe has some more things that need to be done. But that's just kind of a baseline for we can start this discussion. Major system costs are as follows.

An H Vac replacement, 5 to 12,000 and it could be much more depending on how big your house is or if you need multiple systems roof replacement, this is the big one, right? Eight to 20,000, probably more. A quote I got for my roof that I need to do, that I keep putting off is 25,000 and a water heater.

Depending on if you put it in or if some professional puts it in, you're looking at 9 to 3,000. So again, our home warranties worth it.

If you have older appliances such as a water heater and a furnace, it may be something to consider as we go through this podcast. So home warranties typically are going to cost four to $800 a year plus service fees.

In other words, you pay the, let's go right in the middle there, $600 a year. But if you have a claim and someone has to come out and work on it, you're going to be paying a service fee to go along with that.

So over five years that could total three to five thousand dollars, which is similar to replacing one mid range appliance. So what actually fails in the first year?

So according to industry data from providers like American Home Shield, which is one of the bigger home warranty providers out there, the most common claims involve air conditioning systems, electrical systems, water heaters, and refrigerators. Now those are all bigger appliances and they all can get pretty expensive.

Newer systems, which are under 5 to 7 years old statistically have a much lower failure rate. Most major systems are designed to last a certain amount of time. You hear the expression many times they don't make it like they used to.

Well, in some cases that's good. In many cases they build things better than they used to. For example, houses are typically straighter and not as crooked as some of the older ones.

Well, maybe the building materials aren't as good, but there's a lot of good in how they build things now. But that doesn't account for appliances. Typically we will see appliances that just simply don't last as long as one ones in past generations did.

For example, the H Vac, your furnace, your air conditioner, it's not uncommon to see units that are 35 and 40 years old. However, newer models, especially the high, the higher efficiency models, they're typically only going to last 15 to 20 years.

And part of it is the complicated parts.

Part of it is the, the high efficiency part of it extracts more moisture out of the air, has dual heat exchanger, and all those things are more complicated and parts break down quicker. Water heaters, we've seen water heaters 40 years old. Well, if you buy one today, we're pretty sure it's not going to last that long.

Okay, roofs 20 to 30 years. And again most roofs, you're not going to get more than 20 years out of them.

So if the home has midlife or newer systems, what is the statistical risk in one year? And that's a question to ask yourself. So claim approval and customer satisfaction. So this is a big one.

You get a warranty, you file a claim and they deny it and they call it pre existing conditions. Typically a pre existing condition is just not going to be covered. That's why you need to get a home inspection along with a home warranty.

So payout caps, what's the max they're going to pay out? Delays in service, service call fees average 75 to 150 per visit even if the claim is denied.

So there is a downside to this and one thing that you need to consider as you're making that decision. So how often do you understand the fine point before purchasing?

And so you need to know all this, what's the cap, how much are they going to pay out and are there any potential pre existing conditions?

If you buy a house and your air conditioner doesn't work and you move in and now you're going to file a claim that's not going to be covered in many cases.

Now some companies have gone to the state to try to get your business to include pre existing conditions, but there's also fine print in that that will potentially cost you more down the road. So a home inspection versus a warranty risk reduction, a quality inspection reduces risk before closing. This is what you want.

If you're going to get a home warranty, you need to get a home inspection prior to that so that you know what pre existing conditions you have negotiated. Seller repairs often exceed the cost of warranties premiums. So if you can get them to repair them, you don't even need a warranty. Possibly.

And many structural or installation defects, including improper venting, unsafe wiring, grade and grading issues are not covered by warranties at all.

So you remember a warranty company is ultimately in the business of making money and they are going to make money and they're going to set up their policies so they make money. So while they purport to help you, and they will in many cases, there's a lot of fine print that you need to be aware of before you jump into this.

So how are home warranties worth it? In many cases they are. Let's think of a new house.

You buy a brand new house, you got brand New appliances, you got a brand new roof, everything's sparkling clean and new. Many cases a builder himself is going to have a two year warranty on that house and maybe the components within. So you need to find out about that.

My advice would be that if you do buy a new house, new construction, or potentially a house that has a new roof and new major appliances, it may not be worth it to buy a home warranty. I had a rental house at one time, and when I bought it, it was an older house, but it also had a roof that was probably 20 years old.

It had a furnace that was 27, an air conditioner that was 27, and a water heater that was 23 years old. All those components are past the expected lifespan that they come with. So I bought a home warranty.

I think I paid roughly 5 to $600 per year, and as luck would have it, I own the home for three to four years. None of those components went out. But think about if you'd have that house and you'd have a really bad year. You know how things go in threes.

Your water heater goes out, your furnace quits, and your air conditioner conks out all in the same year. You'd be out thousands and thousands of dollars and then a $600 warranty wouldn't seem so bad.

So think of a warranty as just transferring risk from you to the warranty company. Know the fine print. Know what the limitations are on it. Assess your situation. Know your own skill set.

If you are really not capable of fixing anything or installing anything, perfectly fine. Just know what your limitations are and what you want to do with that. So I think our home warranty is worth it, definitely in some cases.

Is it a scam? No. If you read what they wrote and you signed up for it and they follow through with what the contract says, it's not a scam.

Now, are there scammers out there? Well, there is in any industry. So you need to make sure you do your due diligence. You get information, you follow up and look at the reviews.

I will say if you look at reviews on home warranty companies, if you find anything above a three star, you're probably doing well because the only people that get on there are people that complain or have had a claim denied even though it might be legitimate denial. So we've talked about some of the pros and cons. Should you buy it, what does it cover? And that all depends on the package.

Sometimes you can buy more warranty coverage for a bigger, for more coverage. In other words, they got different tiers of coverage. So some could just be the basics.

Some could add in, you know, ancillary services, maybe like a well or things like that, or even sewer line protection, which that wouldn't be a terrible one to have if you're going to go down that route. So get with your real estate agent, give us a call. We can all help you guide. We can guide. We don't make anything off home warranties.

We just want to give an honest assessment of it and if you think they would be worth it. So thanks for listening today. Home warranties can give you peace of mind.

They can cost you out of pocket, but they can save you thousands of dollars in the long run if you have one of those years where things go wrong and you need help with that. So thanks for listening again, share this episode and tune in next time. Thanks. Thank you for listening.

This week you can catch up on the latest episode of the Thoughts from the Crawl Space podcast on Spotify, Apple Podcasts and YouTube. For more information about Gold Key Inspection Services, go togold key inspector dot com.