Buying a home can be an exciting step in adulthood! But after the housewarming party balloons deflate a bit, reality sets in. If something breaks, it’s on you. That’s where a home warranty can save you. Or so you hope.
If you have a home warranty or ever considered getting one, allow me to tell you a story. It’s a story of misfortune, confusion, pain, joy, and relief. A real tear-jerker.
Ok, I am being dramatic as usual. But, I do think it’s something for you to consider as you navigate homeownership.
Is a Home Warranty Just a Waste of Money?
We will begin this story on a very hot Thursday afternoon. As I do when the afternoon summer rays kick into high gear, I turned my air conditioner on.
After about 20 minutes, I realize I am feeling ZERO relief. A bit perplexed, I put my hands up to the vent and my worst fear is confirmed: it’s blowing hot air.
In my previous life as a “renter”, I have lived in three places where the heating, ventilation, and air conditioning (HVAC) system failed. Each time, I thought to myself “whew, good thing I am not the owner!”
My time finally came to feel this pain as an owner. Truthfully, I knew this day would come.
When you buy a home, you know things will die eventually. You just hope you get some type of herculean life out of the appliance/system to where you feel like you got your money’s worth.
With the help of YouTube University, I did some troubleshooting. I located the maintenance code box, and realized I have an outdoor unit fan malfunction.
Fan malfunctions can occur for a number of reasons, so I decided to enlist some help.
Three HVAC companies came out, and none wanted to try repairing it. Their reason was because it’s a brand they weren’t familiar with.
Yes, I have an “off-brand” HVAC system, but that wasn’t my choice! The previous homeowner installed a split-zone heat pump system by a European manufacturer.
None of the parts are available in the states, or online. I couldn’t even get in touch with the manufacturer.
So, what did all three contractors recommend? Quoting me a four-digit number for a brand-new system.
A fourth HVAC contractor took pity on my soul.
A fourth contractor was gracious enough to take a look “under the hood” to attempt repair.
After a few minutes, we spotted the issue. A mouse got in the electrical panel and chewed the wiring.
The mouse was still in there.
My reaction: “Are ya freakin kidding me!?”
His reaction: “Welp that electrical board is done, you are going to need a new system.”
The mouse’s reaction: “Please stop bothering me.”
The quote for a new system was similar to the other quotes: ~$17,000.
Before you go “what? HVAC systems aren’t that expensive!”, keep in mind that split heat pump systems with TWO air handlers AND labor can get quite expensive.
In addition, due to supply chain shortages and increased materials costs due to COVID, all home maintenance is pretty damn expensive these days.
Was I a fool back in 2018?
When I shared my dilemma on social media I was met with: “did you buy the home warranty?”.
Well, no I didn’t.
A head shaker for some, my reasons for passing it up felt valid at the time I bought my house:
- All of my kitchen appliances were brand new
- The HVAC system was less than 5 years old
- Hot water tank was older, but in great condition
- I had an 8-month emergency fund
- Warranty companies are in business to make money
That last point is the reality of all warranty/extended warranty companies. As well as insurance companies.
The home warranty business model is to keep THEIR costs down!
They would love nothing more than for you to pay premiums for YEARS without you ever filing a claim. If you do file a claim, they have quite the list of exclusions.
That’s not to say they are working against you, but do understand their motive is NOT in your best interest.
So, I skipped on the warranty and figured I would take the chance. If anything, I could save on annual premiums and just put that money towards repairs.
3.5 years into homeownership, I was ok with that decision. I have saved thousands in would-be warranty annual premiums and nothing major has gone wrong.
Well, until my HVAC appeared to be beyond repair.
I took a gamble by passing up the home warranty and now here I was wishing I had it.
Risk assessment and gambling has been a bit of a pattern in my life. Ironically, this is my 10-year anniversary of losing $10K from a roulette addiction.
Next year will be my 10-year anniversary of saving $20K and recovering my finances.
I’m no stranger to owning my miscalculations and working like hell to fix and learn from them. I was prepared to do the same with my A/C snafu.
But even in my acceptance of “what is”, I still like to play “what if?”.
In my “what if?” exploration, I decided to research if a home warranty would have even helped me.
My findings were a bit eye-opening.
Turns out, the majority of home warranty companies don’t cover damage from animals.
So, if a mouse crawls into your outdoor unit and chews the wiring, fries the board, or breaks anything else, the home warranty company will likely deny your claim.
Can you imagine paying for a home warranty for YEARS just for a random occurrence like that to happen and you STILL have to pay out of pocket?
A home warranty wouldn’t have saved me. I felt vindicated, but unresolved.
I’ve never been one to turn down a good “deep dive”, so I did more research on home warranty programs.
First, it’s important to realize that a home warranty is a service contract.
If a covered system/appliance breaks, they will first try to repair THAT component; NOT replace the entire system.
This is important to note because as I said before, they are trying to keep THEIR costs down.
Naturally this means that if they can get OUT of even repairing it, that saves them even more money.
For example, if your system/appliance has pre-existing conditions noted on your home inspection report, they may deny you.
Damage from animals? Denied. Neglected maintenance in their opinion? Also denied.
Second, if they DO approve your repair, you can bet they are going to choose the cheapest route for THEM.
This just isn’t my opinion. As the kids say, I got “receipts”.
I called and talked to friends and family members about their home warranty experiences.
Multiple stories of waiting weeks to even get a service visit, getting the “run around”, incomplete repairs, and claim denials.
A friend told me about how a gopher ate through his outdoor HVAC connectors and his claim was denied. Mmhmm, that sounds familiar.
Additionally, I watched countless YouTube reviews from home warranty customers, HVAC repair specialists, and even warranty program insiders.
As you can imagine with anything on the internet, it was mostly negative.
In fact, I have never seen the word “scam” thrown around so much in my life.
I’m not going to specifically name any companies but pretty much all were trashed online for leaving their customers hanging in various situations.
The question remains: Is a home warranty just a waste of money?
The internet is the internet. Bad news travels quicker (and more frequently) than the good.
With that in mind, there have been happy customers. Take my sister who DID get a new HVAC system after her 20+ year old system (naturally) died.
So, is a warranty a waste?
As much as I want to say yes, I can’t since SOME customers do benefit.
The more accurate statement is that even though a warranty is to offer “protection”, it’s still a risk.
You are taking the chance that you have the “right” type of issue to get your claim approved.
I didn’t have the “right” type of issue, and you might not either.
Still on the fence? Consider these factors.
Honestly, buying OR passing on a home warranty program is a gamble.
I’m not trying to scare you, I just want you to be aware and prepared.
In deciding what you should do, keep these factors in mind:
- Age/condition of appliances/systems: Take inventory of your covered appliances and systems. How old are they, and what is the expected life? What’s the condition, and are there pre-existing issues? If newer, the chances are decent you won’t have any issues for a while. If you have a 20+ year old HVAC system like my sister did, getting a home warranty could make sense. After all, it’s not going to work forever. Just remember that pre-existing issues could cause a warranty company to balk.
- Maintenance fund status: Home maintenance can be freaking expensive. Because of this, the prevailing wisdom is to set aside at least one percent of the home’s value every year for home maintenance. For a $250,000 home, this is $2,500 per year, or $250 per month. If you have a strong maintenance or emergency fund in place, you could just pay for repairs out of that and skip the warranty.
- Out of pocket costs: Some appliances are not necessarily worth a year’s worth of premiums. Is it worth paying thousands over five years just to get a microwave replaced under warranty? Probably not. So be sure to compare how much you’ll spend in premiums over 1, 3, 5, 10 years, compared to what it would cost to replace the covered item(s) out of pocket.
- Repair experience: If you are pretty handy, and/or courageous, you might be able to fix your own problems. Being a homeowner has taught me a lot about DIY repairs, but I do wish I was a bit handier. YouTube can only do so much for me!
- Risk tolerance: Can you put a price on peace of mind? Yes. The price is your home warranty monthly premium. Or, you can take a chance like I did and skip it. Your tolerance for risk should play a factor in that decision. Do what helps you to sleep at night.
As usual, I can’t possibly give an all-inclusive list. But if you do get a home warranty, read the contract you are signing!
- 13 First-Time Home Buyer Tips to Avoid a Financial Mess
- Emergency Funds: How Much Is Enough?
- Why Sinking Funds Make Saving Money Ridiculously Easy
- Taking Risks with Money in Order to Start Building Wealth
As for me? I didn’t end up paying $17,000.
After seeing me complain about my dilemma on Instagram stories, a friend of mine recommended an HVAC company he had great experiences with.
They dissected my unit, removed the mice (yes, plural), and fixed the wiring.
For less than $300, a financial catastrophe was averted.
Perhaps a lucky break. But for now, I don’t regret not getting the home warranty.
I’ll reassess that thought after the next thing breaks. And when that happens, I’ll likely share it in my Wednesday newsletter.
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