The Importance Of Home Warranties In A Seller’s Market

Few periods in American history have witnessed as much change in the real estate market as the last ten years. Homeowners in a majority of U.S. cities saw housing prices peak at all-time highs in 2006. Just two years later, the housing bubble burst, devastating the value of homes and property everywhere. The effect was felt by homeowners across the nation. Only in the last year have many housing markets seen significant rebounds, causing experts to label this period a seller’s market. One question many people ask in a seller’s market is: Should I consider home a home warranty? Despite the recent switch from a buyer’s market to a seller’s market, home warranties remain a solid investment that can pay big dividends down the line.

What Is A Home Warranty?

Different kinds of home warranties have existed as long as real estate has been on the market. Purchasing a home is one of the biggest investments many people make in their lifetime. To protect that investment, a home warranty offers insurance against the breakdown of appliances and other home systems. Coverage from home warranties can apply to a broad range of specific items, but some areas that are often included in a plan are:

• Washer / dryer systems
• Dishwashers
• Furnace / heating systems
• Central air conditioning
• Electrical systems
• Stovetops and Ovens
• Microwaves
• Security and Alarm systems
• Refrigerators
• Sprinkler systems
• Garbage disposal
• Basic plumbing systems
• Radon units

What Does A Typical Plan Look Like?

Typical home warranties will be structured with a one-time fee or monthly payment that guarantees the repair or replacement of predetermined appliances and systems should they fail. Additionally, a smaller fee may be required at the time of making a claim, similar to a deductible with car insurance. Just like other warranty and insurance plans, there are many different offerings and plans available depending on the company issuing the warranty. It’s important to familiarize yourself with the specifics with any home warranty. Let’s consider a hypothetical example to see how home warranties could potentially benefit a typical new homeowner.

A Plan For Mrs. Jones

Mrs. Jones recently purchased a home. Despite being beautifully maintained, the house was built over 20 years ago. Because it was a seller’s market, Mrs. Jones had to move fast to make a successful bid on the property. She decided that purchasing a home warranty would protect her in case some of the older appliances presented problems. For $600, she purchased a one-year warranty that covered most of the systems in the house. Just one month after moving in, the dishwasher stopped working. After paying a $100 service fee that was part of the plan, her warranty company determined the old unit was a total loss, and she was given a new dishwasher valued at $350. A similar issue arose with the central air conditioning unit a few months later. After paying the service fee once again, her warranty covered extensive repair work that would have set her back $500.

In the example with Mrs. Jones, a total of $700 came out of her pocket. (Initial warranty $500 + service fees $200) In the end, she received replacements and repairs that totaled $850. (New dishwasher $350 + air conditioning repair $500). The net savings for Mrs. Jones from having a warranty was $150. But even more than that, she was able to move forward with the peace of mind that her home systems were covered in the event of any issues.

Who Should Consider A Home Warranty?

The benefit of peace of mind that comes with home warranties is perhaps the biggest factor in a seller’s market. Potential homebuyers have to be much more decisive on a home they are interested in. With fewer properties on the market and more buyers looking, things can move pretty fast. For first time homebuyers, this only adds extra pressure! In such an environment, home warranties add an extra layer of insurance that can pay off if any issues arise after you move in.

As you begin the search for your home, consult with your real estate agent about how a home warranty plan could benefit you. Many real estate agencies offer warranties as a part of their business. But it’s important to shop around and compare plans before you make a decision. Understand the plan’s specific costs and coverage. Whether you are a seasoned homebuyer or entering the market for the first time, you’ll be able to move in to your home with greater confidence after securing a home warranty.