Published: December 30, 2006 10:55 pm      

Is a home warranty policy right for you?

EDMOND — Most homeowners know about home warranties, but have never used one. These are the policies designed to cover the types of mechanical breakdowns that regular home insurance doesn’t — things like clogged pipes, furnace failures, appliances that go on the blink, etc. The popularity of these policies seems to be on the rise, because buyers expect additional inducements to make an offer.

Here’s how the warranties work. For an annual fee of $250 to $600, the warranties cover repair or replacement of basic home systems such as plumbing and heating, plus major appliances. Air conditioning, pools, spas, wells and sometimes roofs can typically be added to the basic policy for an extra fee.

The warranty company contracts with local repair companies to provide service. If something breaks, the homeowner calls the warranty company, which arranges with the local company to dispatch a repair technician. If the repair or replacement is covered by the contract, the homeowner just pays for the service visit — typically $25 to $75.

Although most warranties are issued as part of a home sale, providers say a growing number of homeowners — 55 percent to 65 percent, depending on the company — decide to keep the policies after the initial coverage period expires. Many buyers hope to avoid repair or replacement costs as their household systems age while others simply don’t want to bother with trying to track down their own repair

technicians.

But are home warranties a good idea? Some homeowners think so. One homeowner said his policy paid for an $800 electrical panel replacement, a $1,200 compressor for his air conditioning unit and then a $3,500 replacement of the A/C system itself. The combined costs far exceeded the cost of his policy.

Others say they have a difficult time scheduling a service call only to find it all but impossible to get aging systems repaired or replaced. One homeowner I spoke with has been battling her warranty provider for nearly a year trying to get a 17-year-old, leaking air conditioner replaced. She said the company replaced a similar window unit only after a real estate agent intervened on her behalf, and now the company is trying to get out of replacing the second unit.

If you choose to purchase one of these warranties, you have to realize these contracts come with loopholes. You need to carefully read your service agreement to determine what is and isn’t covered. Coverage for plumbing, for example, typically ends at your home’s foundation. This means leaks or breakages beyond that will be your responsibility. “Pre-existing” problems typically aren’t covered, neither are breakdowns that result from poor maintenance or improper

installation.

People who have had problems say the more expensive the repair or replacement, the more likely home warranty companies are to invoke these exclusion clauses.

Another factor to remember is when a repair call is needed, you don’t have control over who does the work. The home warranty provider contracts with local service companies to perform the actual inspections and repairs. You don’t get to choose, and scheduling repairs can sometimes be a trial.

Home warranty companies often favor repair over replacement. Repairs are usually cheaper, but that doesn’t mean they’re the wisest choice.

Aging, patched-together household systems can detract from the value of your home when it comes time to sell.

Meanwhile, newer appliances and household systems are typically more energy efficient and can often pay for themselves within a few years.

If you want control over what is repaired and what is replaced, or if your appliances and home systems are relatively new, a home warranty probably isn’t for you. Keep this in mind; with new systems and appliances, the minor repair costs you’re likely to incur will probably be much less than what you shell out for a warranty.

You still need an emergency fund. Home warranties are not a substitute for an emergency savings or home maintenance fund. It’s a good rule of thumb for most homeowners to save 1 percent of their home’s value each year to cover maintenance and repairs.

So when might a home warranty make sense? In the first year you own a new home, when money tends to be tight, a home warranty can temporarily substitute for a home maintenance fund.

If you’re trying to sell a house, a home warranty can give buyers some peace of mind and may reduce the chances of your being sued should an appliance or system break down after the sale.

A home warranty also can work if your home’s systems are aging and you’re willing to settle for repairs if the warranty company won’t replace whatever breaks.

If you do decide to try a home warranty, check with several companies and carefully read each contract to determine what is and isn’t covered.

You also might check with friends and neighbors to see who has warranties and what their experiences have been with various providers.

(Trey Bowden is a loan officer in Edmond.)