Of all the misconceptions about home warranties out there, three stand out: All home warranties are scams, they’re basically the same as homeowner’s insurance, and they’ll protect you against the cost of most or all major repairs. All are common, and dangerously false.
First, not all warranties are scams. There are some reputable home warranty companies who will work with you. However, as with any warranty, reading the fine print is especially crucial, especially when it comes to things like the improper maintenance clause. That’s the fine print that exempts the warranty company from covering your repair costs if the item in question was “improperly maintained,” whatever that means (and it can mean whatever they want it to mean). Even if the seller is throwing in a year of paid home warranty coverage with the house, ask the warranty company about clauses that exempt them from covering you.
Second, home warranties are not insurance. Insurance covers the big stuff—fires, trees falling on your house, and maybe floods (if you buy the extra coverage). Warranties cover smaller stuff—furnace breakdowns, electrical shorts and broken pipes. Knowing the differences in coverage can save you a headache later on.
Third, warranties come with a big list of caveats, one of which is that even if the warranty company agrees to cover the cost of the repair, you’re still on the hook for the service fee (usually about $75), and you don’t get to choose the service provider, they do. And if they can’t find a service provider (say, a plumber on the weekend), then you’re stuck having to pay someone else to do the job out of your pocket or doing the job yourself.