Should You Purchase A Home Warranty?
There is no requirement to purchase a home warranty. A home warranty is like any insurance policy, you are betting that there will be expensive repairs and the insurance company is betting that there will not be expensive repairs. During the first year we tend to see the most repairs so the home warranty reduces the risk of major costs. Also, we only recommend a home warranty for the first year, after that it rarely makes economic sense. After about 6 months, most properties are likely to be very stable for some time. The advantage of the home warranty is that should a major cost item fail like the AC or water heater during the coverage period, your costs are greatly reduced. The charge for a callout is $75. So, instead of a $900 water heater replacement, your cost would be $75.
The downside of a home warranty is that you may not have enough repairs to offset the cost. Also, with a home warranty, the property manager does not have much control over the repair vendor or time frame. For example, the property manager could call around and get an AC technician out the same day the tenant calls. With a home warranty, the tenant may have to wait for one or two days for the AC company the home warranty contracts with to get out and make the repairs.
It's very important to consider which company you choose to buy a home warranty from and what kind of coverage. The company we've had the best results with is Old Republic. We believe the most cost effective plan from Old Republic is their "Ultimate Plan". This plan is about $500/Yr (single family) and covers most of the things likely to go wrong with a tenant occupied property.
One more question to consider is whether to cover appliances. Old Republic has an option to cover the kitchen refrigerator, washer and dryer for an additional $65, if you choose their Ultimate Plan. A typical new refrigerator we would install is between $1200 and $1300, and a pair of new washer/dryer costs about $1200. So depending on the age and condition of the appliances it may make sense to cover the appliances.
When do you pay for the home warranty? Even though we order the home warranty right away after escrow is opened as part of our process, it is paid for by the title company at close of escrow. You do not pay for the warranty unless you close on the property.