Everything You Need to Know About Home Warranties

What is a Home Warranty?
A home warranty is a service plan that protects a homeowner when their major mechanical systems and appliances break down, saving them from high repair costs. Home warranties are available on residential homes for both new construction and existing homes.

What it’s NOT:
Some people might get confused between a home warranty plan and a homeowner's insurance policy, but homeowners insurance is required by your mortgage company and covers your home and personal property in the event of an accident, fire, flood, or major system failure. Homeowners must maintain a homeowner's insurance policy, while a home warranty is optional.

How long does it last?
Home warranty service agreements can vary, but most last for a term of a year or sometimes more. Home warranties can be renewed.

What does it cover?
Home warranties cover normal wear and tear on a home’s systems and appliances.

Most new-home warranties furnished by builders cover the heating, ventilation and air conditioning (HVAC) systems of your home. These warranties also cover windows, plumbing, and electrical systems for workmanship and materials, but not the total replacement. Siding, drywall, paint, trim and stucco are also usually included.

However, one distinction to remember is that these MUST be in good working order when you sign the agreement with the warranty company, or else they are not eligible for repair. Most plans are customizable, so make sure to review your agreement before you sign it and ask plenty of questions to ensure that you're adequately covered.

What is NOT covered:
Consumers should be aware that standard home warranties don’t cover new home appliances. Unlike homeowners insurance, home warranties won’t cover the cost of staying in a hotel if you can’t stay in your residence (for instance, if a heater goes out in winter, your water heater causes a flood, etc.). Small breaks and defects like cracked tile, a scratched appliance, etc. are not covered, either.

The cost of a home warranty:
Home warranty policies range greatly based on the company, the level of coverage, the deductible, and the term. Most home warranty plans fall between $250 and $600 annually.

You’ll pay a deductible when you make a claim.
Any time you file a claim with your home warranty company, you’ll be required to pay a deductible, ranging from $50 to $100 per incident.
Different levels of coverage:
There is no one universal home warranty policy, so you’ll want to pick the level of coverage that best fits your needs. Basic coverage usually covers your furnace, A/C, and major appliances, while upgraded plans cover far more appliances and systems, albeit at a greater cost.

How does it work?
When an appliance or system in your home malfunctions due to normal wear and tear, the homeowner will call their warranty company and register a claim. The warranty company will then arrange for a contractor or repairman to come out to diagnose the problem and make the needed repairs or replace them all together.

Do age and condition matter?
As long as your systems and appliances were in good working order at the time you entered into the home warranty agreement, it won’t matter how old they are.

Home warranties also can help home sellers?
Home sellers can also purchase a home warranty plan and include it in the sale, transferring it to the new buyer. Studies show that homes that include a warranty sell 16% faster than homes that do not, with an average of 66.5 days on the market compared to 55.5, respectively. Homes for sale that offer a home warranty also sell for an average of $2,500 more than those without one!

Who does the repair work?
In the event of a problem, your home warranty company will ask you to submit a claim, at which time they will supply their own approved contractor to do the work. These contractors are often on their list due to pre-arranged discounts, so make sure to ask questions and get in writing that the quality of work, schedule, materials used, etc. won't be compromised.

The most common home warranty repairs:
28% Pool, pest, roof, etc.
26% HVAC (heating and air system)
22% Plumbing
13% Appliance
7% Rekey locks
4% Electrical

Customer satisfaction with home warranties isn’t a strong point.
Unfortunately, many consumers are caught unaware when things break in their home, but they aren't covered in their home warranty. Common customer gripes include the abundance of documentation the warranty company requires, the amount of reimbursement, and the fact that some items aren't included, and some claims denied.

It's always best to thoroughly review all agreements and ask plenty of questions before you pay for a home warranty, as well as keeping all receipts, documentation, and paperwork in case of an issue or dispute.

Should you get a home warranty?
Research shows that if your home new construction and homes less than ten years old, the chance of your appliances or systems failing is extremely small, rendering a home warranty an unneeded expense. However, for homes that are older than ten years and especially those with older big-ticket systems like HVAC, home warranties offer great assurance and save homeowners a lot of money.

Buying a home this year? You can learn a lot from these past homebuyer regrets.

If you could go back and give your younger, greener self some advice before you bought your first house, what it would be?

While we can’t go back in time to counsel ourselves on what mistakes to avoid when buying or selling a home, we can learn from others’ mistakes, and a new survey of homeowner regrets lets us do just that.

For example, an astonishing 53% of all homeowners polled expressed having at least one regret with their past home purchase, and many had multiple regrets.

Interestingly, that percentage has come down over time, most likely because getting information online about smart home purchases is much easier. There was also plenty of remorse to go around over buying before the real estate crash and the economic downturn in 2009. In fact, from 2003-2009, 63% of homeowners had regrets; and from 2010-2013, 55% of homeowners had regrets.

Here’s a list of the top regrets reported by homeowners:

34% wished they had chosen a larger home

11% would have chosen a smaller home

14% wanted to shop around more for a better mortgage

14% wish they had chosen a different real estate agent

12% said: “I wish I had borrowed less against my home.”

27% wanted to do more remodeling when they bought the home

22% wished they had more information about the home before they decided

18% would have put more money down for the down payment

16% wanted to be more financially secure before they purchased

15% wanted a neighborhood with a closer commute to work

14% wanted more information about the neighborhood before buying

12% didn’t understand the costs of homeownership thoroughly

9% would have chosen a neighborhood with less crime

7% would go back and choose a neighborhood with stronger schools

6% would have rented instead of bought altogether

5% would do less remodeling the home than they did

4% wished they had put less money down for the down payment

2% would have borrowed more against their home

The study found that homeowners were:

• 5x more likely to wish they had remodeled more than remodeled less
• 4x times more likely to wish they put a larger down payment, instead of less
• 3x more likely to wish they purchased a bigger home than a smaller home

Let’s be clear: these numbers only represent homeowner regrets, not renters. In fact, renters have their whole other list of regrets (we won’t cover them all here.) But I will note that the biggest difference between homeowners and renters is that 23% of all renters wished they had bought instead of rented, while just 3% of homeowners wished they had rented instead of bought.

It's also worth noting that there's a huge difference in regards to age and the percentages in assessing homeowner regrets. For example, 75% of millennial homeowners expressed at least once regret, while only 36% of homeowners age 55 or older had any similar misgivings about their home purchase.

66% of Gen Xers, or 35-44 years old, had regrets. Only 53% of Young Boomers ages 45-54 years old, had home buying regrets.  So the indicator is that there are some significant social or culture changes taking place that impact how people feel about homeownership.

 Also, the conditions of the market over time have an impact on buyer attitude. When you bought your home makes a significant difference in the instance of regrets, as well. In fact, if you moved into your current home:

• 2002 or earlier, 43% of homeowners have regrets
• 2003-2006, 63% of homeowners have regrets
• 2007-2009, 63% of homeowners have regrets
• 2010-2013, 55% of homeowners have regrets

So do you have any regrets with your previous experience buying a home? What would you differently? What information, tools or resources would have helped you avoid these later misgivings? I’d love to hear your experiences and opinions.

The most important part of my job as your Realtor is to help empower you to make the BEST possible decisions when you buy so you do not end up in those statistics.

Contact me if you have any questions about real estate or want to buy or sell a home – regret free!

10 Home buying mistakes to avoid at all costs.

These common home buying mistakes could cost you time, money, and sometimes the chance to buy your dream home.

Buying the oddball home.
Homes go up in value when other homes with similar layouts in the same neighborhood sell for more. These “comparables” or “comps” allow an appraiser to officially justify an increase in value, and therefore you’ll have more equity if you want to sell or refinance. So it’s important to buy a home that is uniform to most of the other homes n the neighborhood, or else the appraiser will have few or no sales to use as comps. So don’t purchase the only 2-bedroom home in a neighborhood full of 3 and 4-bedroom homes, and never buy the nicest house in a bad neighborhood.

Focusing on cosmetic issues.

Too often, home shoppers walk into a sizable home with a great floor plan in a wonderful neighborhood, but automatically cross it off their list because it has ugly carpet, bright paint colors, or the kitchen or bathrooms are outdated. Don’t be afraid of cosmetic fixes, and in fact, you may get a better deal and have less competition because of them. It’s easy and cheap to get the minor cosmetic fixes and updates done, but adding square footage, putting on a new roof, or the opportunity cost of buying in the wrong neighborhood etc. can get prohibitively expensive.

Becoming emotional.

Of course buying a home stirs up feelings up hope, elation, and even a little fear, but buyers need to remember that the most important thing is that they focus on making good business and long-term decisions.

Not having a strategy.

House hunting takes a lot of time, energy, and diligence, but without proactive planning you might just be spinning your wheels. So make sure to sit down with your Realtor and formulate a plan of attack so you end up finding the right house at the right price in the right neighborhood most efficiently.

Paralysis by analysis.

There are two ways we choose a home: with information or with emotion. Hopefully, you’ll use both when house hunting. But some times, people get so focused in on analyzing every single statistic, detail, and shred of data that it holds them back from making any offers or having a chance at buying any house, their ultimate goal! Fear of making offers, not looking at the market realistically, and expecting to get every single item on your list of needs and wants for a home are all symptoms of paralysis by analysis.

Overlooking important problems.

At some point in your house search, you’ll probably walk into a home and very quickly think, “This is it!” But no matter how much it “feels right” or you love the house, don’t ignore flaws or problems. Always get a home inspection and pay close attention to the big-ticket problem items like foundations, roofs, electrical, plumbing, etc. just because you love the house.

Not checking your credit report and getting preapproved.

When do you start the home buying process? Ideally, you should begin getting your finances in order 6-12 months ahead of time. In addition to saving for your down payment and carefully budgeting, you’ll also want to check your credit score and take action to boost it as much as possible. The difference between a good and a great credit score could make a huge difference in the loan you qualify for, your interest rate and payments, or even being an attractive homebuyer to sellers and getting your offers accepted.

About 2 to 3 months before you’re ready to get in a Realtor’s car and start shopping for homes, you’ll want to sit down with a mortgage professional to get preapproved for a loan. That will let you know exactly what you qualify for, what’s affordable for your budget, and therefore which homes in what price range you’ll be able to hunt for, saving everyone’s time - and probably money.

Picking your real estate agent and lender blindly.

You’ll need a great working relationship with your Realtor and mortgage lender, one that’s based on trust, market knowledge, and industry experience. It’s too big of a decision to just go with the first Realtor who approaches you or someone just because you know them. Contact some neighborhood experts, ask your friends and coworkers for great recommendations, read Yelp reviews, review their website and testimonials, and don’t be afraid to interview perspective agents and mortgage professionals.

Not hiring a home inspector.

Your home is probably the biggest investment you’ll make in your life; way too important to skip the few hundred dollars it takes to get a home inspection. A home inspection will disclose both cosmetic flaws and the big, important problems with the house that could cost you thousands of dollars down the road.

Not researching your neighborhood.

Remember the old home buying wisdom, “Location, location, location?” Well it still applies, as you’ll want to get to know the neighborhood very well. Are there train tracks nearby? Street noise? Crime problems? Good schools? Is it an easy commute to your work? Are values generally going up in that neighborhood? These are all questions you’ll want to ask with the help of your real estate agent.