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What is a home warranty, and do you need one?

Published: Monday, July 29, 2013 11:36 a.m. CDT

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When you buy a computer from Best Buy, you’ll be asked if you want to cover it with an extended warranty. Some people go ahead and pay the extra money, but not everyone thinks these warranties are a good idea. Consumer Reports almost always says they aren’t worth the money.

You might be surprised to learn that, sort of like the computer from Best Buy, you may have the option of buying a warranty for your home. Depending on your situation, a home warranty could definitely be worth the investment.

What is a home warranty?

For a fee of between $300 and $500 a year, depending on where you live, a home warranty covers the costs of repairing or replacing most any malfunctioning system in your home.

Let’s say your dishwasher starts leaking, your clothes dryer burns out, or your water heater won’t heat water anymore. If you had a home warranty, you wouldn’t have to call around to get estimates for repairs. You wouldn’t have to pay out of pocket to get it fixed, either.

Instead, you would just call up your home warranty provider. The warranty company would call the appropriate repair company it has an arrangement with. The repair company then would call you and set up an appointment. The company would send someone to your house to fix the problem, if possible, or replace the malfunctioning appliance with a brand new one. Your home warranty would cover the costs, though you’d probably be responsible for a co-pay of about $50 per incident.

Who should buy a home warranty?

Home warranties are particularly great for first-time Gen X /Y and Millennial home buyers who’ve been renters until now. They’re used to calling the landlord whenever there’s a problem, and a home warranty company takes over that role. These homeowners are working long hours and might not have the time or the energy to call around to find a plumber or an electrician to get quotes or bids, let alone wait around for the noon to 4 p.m. window for the repairman to show up. Sometimes, it takes just one costly and unexpected system repair — and the drama associated with it — to realize the savings of a one-year home warranty.

But home warranties aren’t limited to Gen X, Gen Y or other first-time home buyers. A homeowner can buy one at any time. Are you buying or do you own a 15- to 20-year-old home (or older)? Does the home have aging appliances and systems? A home warranty might be well worth your money. Many appliances and systems start to break down after 15 or 20 years, and you don’t want them all falling apart on you around the same time. Your real estate agent can give you referrals, and you can read reviews of home warranty companies on the Home Warranty Reviews site.

Home warranties are also great for investors or “accidental landlords,” folks who end up renting their homes out because they have to move and want to hold out until the market picks back up. If you’re not an experienced real estate investor and don’t have a network of repair folks, it might be easier to pay for the home warranty. The last thing you want is a tenant without hot water calling you day in and day out. If you have a home warranty, you can cut right to the chase, keep happy tenants and minimize stress.

If you shop for a home warranty, be sure to ask each company exactly what’s covered. If something isn’t covered (such as the plumbing system), ask if you can add on coverage, and if so, at what cost.

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Brendon DeSimone is a Realtor and one of the nation’s leading real estate experts. He has collaborated on multiple real estate books and his expert advice is regularly sought out by print, online and television media outlets including FOX News, CNBC, Good Morning America and Forbes. An avid investor himself, Brendon owns real estate around the US and abroad and is licensed to sell in California and New York. You can find Brendon on Facebook or follow him on Twitter or Google Plus.

Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of Zillow.

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