Should You Buy a Homeowners’ Warranty?

by TTMK on August 24, 2015 · 2 comments

The following post is from staff writer Melissa Batai

When we bought our 18 year old house last year, the realtor arranged for it to come with a homeowner’s warranty paid for by the previous owner. (Sweet!)

The realtor also let us know that the air conditioning unit was original to the house and had already exceeded its typical lifespan. Since we’re in Arizona where air conditioning is used up to 8 months a year and since a replacement air conditioner would cost $4,000 to $6,000, the realtor’s parting words were, “Don’t let your homeowners’ warranty lapse!”

As it turns out, the homeowner’s warranty is not as beneficial as we originally thought.

Drawbacks to the Homeowners Warranty

Ah, let me count the drawbacks!

No flexibility with replacement units. The warranty will only cover identical replacements.

Just one week into living in our new home, our water heater broke and needed to be replaced. (It leaked into our pantry and ruined some of the dry wall before we discovered it.)

While I wanted to consider more eco-friendly options like a solar-heated water heater, that wasn’t an option. The warranty dictated the replacement.

No flexibility with service companies. Likewise, you have to choose a service company that the warranty company approves us. I was not impressed with the warranty service man who worked on our hot water heater. He scared me with visions of black mold filling our home and causing more damage thanks to the leak and suggested that we call a local company to clean out the wet area. This company would have cost over $1,500. Turns out, the leak was small and dried on its own here in the dry desert environment. The realtor brought out her repair person who removed the dry wall, blew a big fan on it for a few days, and treated the problem for less than $100. One year later, there’s no mold.

The replacement isn’t completely covered. I knew that I would have to pay a $65 co-pay for having the water heater replaced, but I didn’t expect that I would have to pay almost an additional $400! Of the $900 for the replacement water heater, I had to pay almost 50% for things that weren’t included in the warranty like replacing the connecting pipes to the new unit, etc.

Only handles repairs and replacements. Our electric bill suddenly jumped $100 last month even though we hadn’t changed any of our usage. Turns out, the air conditioner needed more Freon. I had to pay that $200 service bill on my own because technically the air conditioner wasn’t broken or dead. Considering the age of the unit, I wonder how many more times I’ll have to pay to nurse it along and keep my electric bill in check before it does break or die so that the warranty can cover the cost.

Benefits to the Homeowners Warranty

Does pay for expensive repairs. Despite the drawbacks to the homeowners’ warranty, we decided to pay the premium for another year because we just don’t have the cash to pay for a $4,000 to $6,000 repair should the air conditioner finally die. Even though they only paid $500 for the water heater, that was $500 we didn’t have to pay.

In short, based on our experience, I’d recommend a homeowners’ warranty if finances are tight and you’re still building up an ample emergency fund.

If you have the funds to cover most home repairs yourself without financial hardship, a homeowners’ warranty really isn’t necessary.

My Question for You

What are your thoughts on homeowners’ warranties? Do you recommend them, or do you think they’re a waste of money? Have you had one before? Would you recommend it?

{ 2 comments… read them below or add one }

Mr. Utopia @ Personal Finance Utopia August 24, 2015 at 11:06 pm

Oh no! I am conjuring up images of my nightmare foreclosure. I had a homeowner’s warranty thrown in by the fiendish sellers. It was pretty much worthless to me. From my own personal experience, a homeowner’s warranty is not worth it. However, for others, it may be beneficial.


joe September 28, 2015 at 3:13 pm

Home warranties like any other warranties vary in coverage depending on the builder. Due diligence goes a long way. Read the warranties, understand them before you buy. Are they helpfully absolutely. A good home warranty coupled with home owners insurance (not cut rate cheap seat insurance) will reduce your out of pocket liability considerably. Anyone who disagrees either has a poor insurance coverage policy,poor home warranty or simply a poor understanding of basic finance.


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