Whether you’re buying real estate for your rental business or a new permanent residence, protecting your property is essential. However, what does it mean to protect your home? What kind of insurance do you need? Are home warranties worth it? In today’s article, we’ll go over the basics of home warranties, the difference between warranties and insurance, and whether they’re worth it or not for investors.
Contents of This Article:
- What Is a Home Warranty?
- What’s Covered In a Home Warranty?
- Home Warranty vs. Home Insurance
- How Much Is a Home Warranty?
- Are Home Warranties Worth It for Investors?
- Protect Your Properties With Professional Management
What Is a Home Warranty?
Whether you’re an investor, homeowner, or property management company in Philadelphia, it’s important to know about home warranties and how they compare to home insurance.
A home warranty is not the same as home insurance, although they’re often confused with one another. For example, home insurance generally covers damage from natural disasters, property crimes, and certain types of water damage. On the other hand, a home warranty covers the home’s major components, like plumbing, electrical wiring, HVAC system, and more. Additionally, it may cover some appliances, like your washer and dryer or refrigerator.
You’ll likely be offered a home warranty when you purchase real estate. Warranties reassure buyers and protect sellers against complaints about home defects after the sale. Depending on how long you want coverage, you can buy most home warranties on a one-time basis or monthly fee.
That said, some plans have basic components that provide all homeowners that purchase a policy with certain coverages. However, homeowners can also purchase more components that provide additional coverage at a higher cost. Next, we’ll go over what’s covered in a home warranty.
What’s Covered In a Home Warranty?
Home warranties generally work in conjunction with your home insurance. As stated above, most home warranties cover your home’s major systems, like heating, air conditioning, plumbing, water heating, and electric wiring.
You can also choose to add-on coverage for additional home appliances. For instance, you can choose to cover your washer and dryer, dishwasher, stove, and other appliances. Additionally, if you have a pool or hot tub, there are generally options to cover those as well.
However, it’s important to note that home warranties only cover items that were in working condition when you moved in. Additionally, warranties don’t cover systems or appliances that are damaged due to abuse.
What’s Not Covered Under a Home Warranty?
Now that we’ve reviewed a few things covered under a home warranty, you may ask what’s not covered. While it varies depending on which policy you choose, home warranties don’t generally cover the following:
- Pre-existing damages
- Structural failures
- Zoning and code violations
- Damage due to improper use or lack of maintenance
- Fading, rust, or other wear and tear
- Commercial equipment
- Asbestos or mold removal
Home Warranty vs. Home Insurance
While “warranty” and “insurance” both indicate some type of protection for people who purchase them, they’re not the same. Therefore, investors and homeowners must recognize the difference to make an informed choice for their property. After all, home warranties and insurance have similar structures but offer different benefits and coverages.
For instance, home warranty plans are optional and cover servicing, repairing, and replacing home systems. As stated above, your home’s main components covered under warranty include most appliances and major necessary systems, like heating and cooling. Additionally, most home warranties state exactly what they cover in the contract, depending on your coverage type.
On the other hand, homeowner’s insurance is generally required by lenders and covers damage due to outside forces, like weather, fire, or vandalism. So, if any of these events damage or destroy part of your home, insurance will help recoup the costs and replace lost or damaged belongings. For instance, if a storm causes a tree to fall on your house, your homeowner’s insurance helps to replace the damaged appliances.
Generally, the main difference between home warranties and insurance is that insurance covers unexpected events that damage the property. On the other hand, home warranties cover events that are somewhat expected, like the aging or breakdown of appliances or home systems.
How Much Is a Home Warranty?
As mentioned earlier, you can generally purchase home warranties on a one-time basis or for a monthly fee. One-time warranties are generally paid upfront, and then the home is covered for a specific period of time. On the other hand, monthly warranties usually come with a contract term, which you’ll have to renew.
The cost of home warranties differs based on the type of property you buy. For instance, due to the associated risk, a single-family home is treated differently from a multifamily property. However, square footage doesn’t necessarily matter unless the home is larger than 5,000 square feet. After all, most homes have the same appliances regardless of size.
Another determining factor in the price of a home warranty is the age of the property. Newer properties are generally more costly since they have newer or more advanced appliances.
Ultimately, the coverage you choose is the main determining factor in how much you’ll pay. For instance, the more add-ons you have, the more you’ll have to pay. So, if you have a pool or hot tub to cover, you can expect to pay more. One of the most expensive add-ons is for a guest home or secondary structure.
That said, you can expect to pay several hundred dollars annually, up-front or in installments, for a home warranty. The average cost for a home warranty is around $400 to $900 per year.
Aside from the annual cost, home warranties charge a service call fee of around $60 to $100 each time the holder requests a service provider to check out an issue with the home. In addition, the homeowner may have to pay additional fees if the problem requires multiple service providers.
Are Home Warranties Worth It for Investors?
Although home warranties aren’t necessary or required by your mortgage lender, they can come in handy depending on the property you buy. However, not all issues are covered under warranty, meaning you’ll have to pay for some home repairs. Additionally, your warranty company may deny a claim, leaving you to pay the service fee and repair costs.
So, are home warranties worth it for rental property investors? Here’s a list of the pros and cons, revealing how it can be beneficial or how it may be a waste of money.
Benefits of Home Warranties
- Peace of Mind- If you rent your property to tenants, you may worry a bit about keeping your appliances intact. However, if your tenants take care of the property just as you would, you can feel rest assured that any issues will be covered by warranty.
- Convenient- A warranty can be beneficial if you’re not handy or familiar with hiring contractors to fix things in your home. You just have to call your warranty company, explain your issues, and they’ll take care of the rest.
- Affordable- In the grand scheme, paying a few hundred dollars annually to protect your home’s appliances can be worth it–especially if you have newer or more expensive taste.
Cons of Home Warranties
- Service Call Fees- Each time you call about a potential issue with your property, you have to pay a service fee, even if they cannot fix the issue. If it takes more than one contractor to fix the issue, you may have to pay an additional fee.
- Less Control- With a home warranty, you don’t choose who repairs your appliances. You’ll have to deal with the replacement parts, contractors, and work quality selected by the warranty company.
- No Coverage Without Proper Maintenance- Home warranties don’t cover everything in your home. Additionally, if you or your tenants don’t maintain appliances correctly, you could miss out on coverage for those items. Most warranties require “proper maintenance,” where they can often be grey areas of what’s acceptable.
Protect Your Properties With Professional Management
If you’ve gone back and forth between whether home warranties are worth it or not, you most likely care about protecting your properties. If you own rental properties, you must work harder to ensure each property is insured and protected. One way to protect your properties with ease is with comprehensive property management.
Bay Property Management Group is a full-service management team working with landlords across Baltimore, Philadelphia, Northern Virginia, and Washington, DC. We work hard to ensure your properties are expertly managed and cared for 24/7. If you’re looking for property management or want to learn more about our comprehensive services, contact BMG today.