I distinctly remember the moment during our negotiations for our first house that my wife and I told our agent we didn’t need a home warranty. The house we bought had just been redone and we were certain the appliances were new. “What could possibly break in the first year?” Fast forward 4 months and I had no way to wash my dirty laundry. Several hundred dollars later we had a working washing machine and traded our heap of unwashed socks for a heap of regret.

At it’s simplest, a home warranty is an annual service contract that covers the repair or replacement of important appliances and systems in your home. Think of it as insurance on your big-ticket appliances. Policies can run anywhere from $300-$800 depending on your area and what you’d like included. To get a full idea of what one of these policies can cover, I’ve included a worksheet from one popular home warranty company. (This is by no means an endorsement of this particular company – just an example)

As you can see, a typical policy covers things like your electrical panel, air condition, dishwasher, plumbing, etc. Most also offer upgraded options that cover individual big-ticket items like a pool or septic system. Then, of course, there are the up-sell options that cover all sorts of little things if you really don’t want to handle something that breaks. (Showerhead? Soap Dispenser? – Personally, if that stuff breaks I’m just popping over to the hardware store for a replacement.)

The advantage of a Home Warranty is that for a few hundred dollars you get peace of mind knowing you won’t have to fork over large sums if something expensive breaks. The downside is that if nothing breaks then you just spent a few hundred dollars on nothing. Also, keep in mind is that quality can vary from one company to another. I’ve heard horror stories of the “preferred contractor” totally failing to show up or some cases making things worse! If you do decide to opt for a Home Warranty, do your research ahead of time and check reviews from homeowners who have their their policy recently. ConsumerAdvocate.org also keeps a nice list here.

The question of whether or not to get a home warranty often comes up with my clients when we are finalizing a deal. It usually goes something like this:

Me: “Do you want a Home Warranty?”

Them: “I don’t know, what do you think” or “Is it worth it?”

Unfortunately, the answer to both of these questions is usually: “It depends.” So, I decided to flip the question back to the non-real estate agents in the room. I posted a poll in the Your Financial Pharmacist Facebook Group to see what everyone there thought. Here are the results:

The consensus is that a Home Warranty is worth it if the seller is paying. My opinion is usually this: If you are worried about something in particular, say an old A/C unit or dishwasher, and you don’t have the ability to pay for a repair or replacement, get a home warranty. Better yet, ask the seller to pay for one. This gives you a whole year to save up for that big-ticket item while identifying the appliances that might be in need of attention soon.