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Should I get a home warranty?

My buying clients often ask me “should I get a home warranty?” Yes. The answer is yes unless you are:

1) a general contractor
2) an investor who will not occupy the home or
3) buying a fixer upper in poor condition.

Why would you want a home warranty? The real question is why wouldn’t you want a home warranty? Most warranties protect all the systems in the home for 1 year. That means if your AC unit quits running you pay a $70 deductible and someone fixes it. After pricing some repairs for a client last summer, it will cost you at least $150 for someone to look at your system in this area. That’s before he fixes anything! Repair and replacement bills for AC and heating systems can cost thousands of dollars. Compare that to a warranty cost of $350-$600 and you can see why it makes sense.

Most warranties protect basic home systems, but there are some additional coverages you can purchase. Some extra coverages include swimming pool/spa equipment, extended pipe leak coverage and higher limits on existing coverage like toilets and garage door openers. One exception to this is the builders home warranty. In Virginia builders are required to provide a warranty on many systems for up to 10 years. Most builders purchase a builders home warranty to handle this coverage, although some still warranty their product themselves.

There are a number of companies out there and you can choose your favorite. I only have personal experience with two of them. One I love and the other I hate. When we purchased our home a 2-10 Home Buyers Warranty was on our home. Our AC went out in the middle of a heat wave. It took us a week and half to get it fixed. Throughout the entire process I was on the phone with the contractor, the reps at 2-10, supervisors at 2-10 and finally a manager at 2-10. We had to twist every arm in the company for them to authorize overtime for the installation, in spite of the fact that temperatures were topping 100 degrees and we had a 9 month old child in the house. I would not recommend them, and refuse to use them professionally unless the warranty has already been purchased.

Conversely, I have used Old Republic Home Protection for 5 years and been super happy with their service and response. I have received nothing but accolades from my clients without a single complaint. In fact, recently we had an issue where, several months after closing, we found a clients warranty was never issued. After contacting Old Republic and getting the title company to reissue the check, they backdated the coverage to make it effective on the purchase date. That’s a company that believes in the people it does business with, and I will continue to use them.

A note to sellers: I always recommend my sellers offer a home warranty. While it does not relieve you of the legal obligation to disclose a known material defect, it will give the purchaser a low cost option to have something fixed after they buy the home. This could prevent a lawsuit and all the ensuing ugliness. $350-$600 is cheap compared to what most attorneys charge.

One final thing to keep in mind. Until recently, it was legal for home warranty companies to pay a “marketing fee” or some such to real estate brokers who used them. That is no longer the case, so know that when you pay for your warranty your REALTOR is not getting any sort of kickback or inducement to get you to buy it. As for me, I’ve seen Old Republic replace refrigerators and repair AC units. I know warranties are worth it.

Posted on February 24, 2011 at 12:04 pm by Ray Nelson


Mark Geslock on said: Reply

Have you ever used American Home Shield? They are probably the best warranty company I have seen. The rep lives local, always takes calls and takes care of everything. Ask around…..they are great!!!

Kimberly Harrow on said: Reply

You better look at the RESPA ruling again!! HWC can pay marketing fees as long as there is a compensalble service being provided and that the service is distinct and apart from the duties of an agent to complete a real estate transaction and that the fee being paid is fair market value of that service.

Section 8(c) of RESPA guidelines – June 25, 2010
Clarification on Flat Fees was referred to in the update from HUD in November.

It is a violation of RESPA for an HWC to be paid to have exclusivity in a brokerage.

admin on said: Reply

Mark, I have not used AHS but I will keep them in mind. Thanks for the tip.

Kimberly, I understand that, but what most agents were doing in the local market was simply offering the warranty and getting paid a referral fee, which is clearly what this ruling is designed to discourage. Referring the company is not a compensible service, but I would offer that if the REALTOR were doing work to earn the fee it would not be a referral fee but justifiably earned income.

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