Why You Need a New Home Warranty

It’s been two years since you moved into your new home and so far, everything is working smoothly.

Then your neighborhood is hit by a series of violent thunderstorms followed by widespread flooding and the sump pump goes on the fritz. Bad news: you need a new pump, which will run about $1,200.

Purchasing a third-party warranty for an older home is a no-brainer (you don’t want to have to replace a 30-year-old furnace right after you move in). But new-home buyers are often shocked when something goes wrong. Most builders offer a one-year warranty; anything after that must be covered by you.

Lynn Windle of The Windle Group/Coldwell Banker Apex in McKinney, Texas, says the major name-brand builders she works with offer at least a one-year, bumper-to-bumper warranty on materials and workmanship; a two-year warranty on mechanical delivery systems, i.e., plumbing, electrical and HVAC systems and a 10-year warranty against major structural defects (such as a roof that could collapse).

“Once upon a time this type of coverage was mandated by the state of Texas, but since it’s no longer required by the state, buyers need to do their homework and ask to see the warranty coverage in writing before they purchase a new home,” Windle says.

She recommends that buyers purchase a warranty for the second year and every year thereafter. “In the long run, it could reduce maintenance costs related to routine wear and tear.”

Home warranties — also known as residential service contracts — typically cost between $300 and $700 a year and cover such components as windows, HVAC systems, plumbing and electrical, as well as major appliances. Optional packages are available for items that aren’t part of the basic coverage, such as pool and spa equipment and septic systems. Warranties typically last one year from the date of purchase with the option to renew.

A local contractor is dispatched to repair or replace the failed appliance or system. For each service call, the homeowner pays a flat fee ranging from $60 to $75.

What’s Covered, What’s Not

Unlike homeowner’s insurance, which protects against damage and loss caused by fire, wind, hail, fallen trees and other natural acts as well as theft and vandalism, home warranties cover the repair or replacement of major systems and appliances. But home warranties don’t typically cover the roof, the foundation or anything structural and they won’t cover routine maintenance, cosmetic defects or damage caused by pets or misuse.

The winter storms that often batter the Northeast are a painful reminder of the need to keep the edges of roofs snow-free, says Sheryl Simon of Benoit Mizner Simon & Co., Weston, Mass. “I spoke to several builders who said ice dams wouldn’t be covered under their warranty,” says Simon.

How to Select a Warranty Company

When shopping for a home-warranty company, take these steps:

• Decide what coverage you need.
• Review sample contracts from different warranty companies. Some companies only cover part of the cost if an item needs to be replaced, warns Midlothian, Va., Realtor Peggy Bouchard: “They’ll say, ‘Here’s a $1,500 credit; now go buy a new HVAC system.’ Sadly, it’s going to cost you $6,000.”
• Read online reviews to see what customers think, paying attention to the number of negative comments. Talk to everyone you possibly can, from your Realtor to family members and friends who have had warranties, says Bouchard.
• Make sure contractors are nearby and well rated.

Once you’ve zeroed in on a company, get the name of a representative. “As agents, we can talk to the rep, who will then go to bat for [the homeowner] with the warranty company,” Bouchard says. “When you’re signing up online, there’s no one to mediate for you if something’s not covered.”

Lynn Windle, a Realtor in McKinney, Texas, advises choosing a warranty company that is licensed by the state real-estate commission and belongs to the National Home Service Contract Association.

Inspect Before Builder Warranty Expires

Windle gives the following advice to new-home buyers: “I recommend that you have the home inspected again at month 11, prior to the expiration of the builder’s warranty and have the builder fix any new problems that have surfaced,” she says.