Today is the one year anniversary of the day I bought my condo. When I bought this condo, I knew that I would probably need to replace the appliances – sooner rather than later. I actually went down to an appliance store, spent a couple hours, picked out new items, paid, and then had some problems with them not fitting, and sent them back. It was around then that I had an epiphany that this home warranty might cover some of this, and started researching.
Over the past year, I have successfully used my home warranty to affect over $4000 in repairs to my condo – spending just $1000 out of pocket. You can too. Here’s how:
What is a Home Warranty:
it’s essentially a yearly/monthly insurance policy that if certain big-ticket items in your house break down, you can get them repaired for a small ~$60 deductible. Homeowners insurance covers leaks, property theft, and fires. Home Warranties cover broke down air conditioners, heaters, washers, stoves, and refrigerators. A Home Warranty costs around $500/year.
The secret reason they exist:
When a buyer is in contract to buy a home, the buyer hires someone to do an inspection, that comes back saying X, Y, and Z are broken, aren’t up to code, is molding, infested with termites, etc. Frugal buyers will then push on the seller saying “you need to spend your own money to fix these items, or you need to knock $XYZ off the selling price so that I can repair these things when I move in.” Sometimes that happens, sometimes it doesn’t. But what if something doesn’t get caught? What if, after the sale closes, the buyer discovers an appliance is broken, and tries to sue the seller, or the seller’s agent? Instead of worrying, the seller can spend $500 for peace of mind, and carve off $500 from the sale of the home to go toward this Home Warranty. Then, if the buyer comes back and something is broken, it’s covered!
Why the Home Warranty Companies stay in business:
The Home Warranty is being bought by the seller, not you – the new ower. You have literally thousands of pages of documentation associated with this new house, and different policies – escrow accounts, home warranties, homeowners association dues, homeowner’s insurance, property taxes, etc. – so it’s quite likely that you haven’t gotten around to figuring out how your home warranty works and what it covers. The Home Warranty company is hoping so too. Furthermore, they’re hoping that at the end of your first year of coverage, they’ll manage to worry you enough to renew. They’ll call saying “How old are your appliances? Your water heater? Your air conditioner? You don’t know? Well, the average lifespan on that is usually just 5 years – what if it breaks down. You want to be covered, don’t you?”
How to Maximize Your Home Warranty:
Every time a repair person comes in, you pay a deductible. And if they can’t repair the item, they generally offer to buy you a replacement appliance. They’ll always pick the cheapest replacement one possible, but you can opt for cash instead. My fridge’s ice maker was broken. It was 20 years old so naturally they couldn’t find replacement parts. They offered to buy me a new $900 fridge. I offered to pay the difference between that one and the nicer, silver, “french door” model that I wanted. Then they paid for delivery and installation. The net was a new $1600 fridge for just $600 (the difference) + $60 (deductible) = $660 out of pocket. I also had them replace my dishwasher and stove. And next week, just before the first year of the warranty ends, they are going to come fix or replace my wall heater and my leaky bathroom faucets.
Like with Vegas, the smart move is to get out while you’re ahead. So I won’t be renewing my home warranty at the end of this year. Instead, I’ll save the $500/year which should more than cover any breakdowns for the next 5 years. Luckily, since I’m in a condo unit with no water heater, air conditioning, some of the bigger-ticket items aren’t an issue for me.