Should You Get a New Home Warranty?

Is a new home warranty right for you? You should consider a new home warranty to help ease your mind about what could go wrong with your new home after the closing. Weigh the costs and benefits of purchasing a new home warranty before you agree to it.

A new home warranty is not right for everyone in every situation and determining whether or not you should buy a new home warranty is just as important as what kind of flooring or cabinets you choose in your new kitchen.

Deciding on a New Home Warranty

A new home warranty — sometimes also known as a new home protection plan — is a kind of elective insurance that you can purchase when you buy a new home. The new home warranty is a contract that typically covers major systems and major appliances within the new home for a specified period of time (usually for one year, but sometimes warranties can run for longer terms or be extended to include longer periods).

If any of those systems covered under the warranty malfunction or the appliances break down during the coverage period, the new owners only need pay a nominal service fee (in most cases) to get everything right, including repair or replacement (if necessary) of the broken system or appliance.

Who Offers a New Home Warranty?

Depending on the circumstances of the sale of your new home, the seller or builder may offer and pay for a new home warranty as an enticement to the buyer. Or the buyer may request the new home warranty if the seller does not offer one and a new home warranty is available. Sometimes the real estate agent will offer a new home warranty as an enticement to a potential buyer to complete the sale.

For the peace of mind of both the buyer and the seller, a new home warranty is a generally good idea, especially if the buyer is not skilled at home maintenance and/or home appliance repair or if the new home buyer has any doubts about the reliability of any of the new home’s systems or appliances. Not everyone needs a new home warranty, but in many cases a new home warranty can save time, money and aggravation, as the new home warranty is often less expensive than the cost of replacing just one major appliance.

Obtaining a New Home Warranty

Although you can consult the Internet or the Yellow Pages to find a company that offers new home warranties, the companies that specialize in new home warranties typically market them exclusively to real estate agents and don’t do much advertising to the general public. Builders of brand new homes almost always offer their own new home warranties as a display of confidence in their craftsmanship. Ask your real estate agent what types of new home warranties are available on your new home. Compare the various options, as different companies offer varying coverage at variable costs (generally between $250 and $500 to execute a new home warranty).

What is Covered By a New Home Warranty?

A typical new home warranty will cover:

• Structural elements, including roof rafters, joists and trusses, support beams, wall framing
• Air conditioning system and ductwork
• Furnace and/or heating system
• Electrical system
• Indoor plumbing system
• Major kitchen appliances, such as stove/range, oven, dishwasher, garbage disposal, etc. (Refrigerators, washing machines and clothes dryers may or may not be covered, depending on the policy.)
• Additional appliances and mechanical systems, including hot water heater, ceiling fans, doorbells, etc.

A new home warranty on a new home will also typically cover defects in materials and workmanship, such as faulty installation of fixtures, peeling paint or poor craftsmanship.

What is Not Covered By a New Home Warranty

Some things a new home warranty will not typically cover:

• The roof covering and any leaks resulting from inadequate roofing
• The home’s foundation
• Natural disasters or accidents typically covered by homeowners insurance policies, such as fire, flood, earthquake, hurricane or storm damage
• Outdoor fixtures, such as sprinkler systems, decks and storage sheds
• Garage door openers (sometimes covered by home warranties)
• Driveways, sidewalks, landscaping, etc.
• Water faucets and drains
• Spas and/or pools (unless coverage of these items is specified, usually for an additional initial fee)
• Disposal of old appliances, etc.

How a New Home Warranty Works

Once a new home warranty is in place, the new homeowner is supplied with information on how to contact the home warranty provider. If service is required, the homeowner contacts the provider, who then dispatches a technician of its choice to the home. In addition to the initial cost of the new home warranty, a nominal service fee (usually $100 or less) is assessed each time a technician is dispatched, but there are (usually) no additional fees, no matter how big the problem turns out to be.

If a home system or appliance breaks down, the technician will first attempt to repair the system or appliance. If it cannot be repaired, a new part or appliance will be ordered and installed without additional cost, depending on the terms of the new home warranty contract. Your policy should spell out what kind of replacement appliance will be installed; it should be comparable in cost and function to the broken appliance, regardless of the age of the broken appliance.

Cost-Benefit Analysis

You should weigh the costs of a new home warranty against the potential benefits.

New home warranty plans differ, so you should know specifically what is and is not covered. If everything is new, you may not need a new home warranty because nothing is likely to break within the first year or two. If the home is 10 years old or more and everything is used, a home warranty is probably a good idea.

Like any insurance policy, a new home warranty is a form of risk management, so you should conduct a cost-benefit analysis to determine whether a new home warranty is a sound option for you. That way you won’t pay for something you don’t really need.

Disputes

Occasionally, a service provider will deny a claim by a home owner who is covered by a new home warranty. A few things that can cause denial of a claim include improper maintenance, improper installation, code violations and excessive wear and tear.

If the service provider balks at covering the breakdown or if their service is not satisfactory, you should contact your real estate agent — even months after the sale closes — who may be able to smooth over the dispute. The real estate agent’s company presumably has a working relationship with the company that offered the warranty or the service providers who fulfill the warranty and in the interest of preserving and prolonging those relationships, the real estate agent may be able to apply pressure on the provider to rectify the problem.

Extending a Home Warranty

Sometimes, home warranties can be extended beyond the initial coverage period for an additional fee. To avoid surprises or denial of extension of new home warranty benefits, ask your new home warranty service provider about the possibility and cost of extending coverage for an additional period of time before you sign the initial contract.

Weigh the costs and benefits of extending a new home warranty before you agree to an extension.

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