Is a Home Warranty Worth It?

Just like a home addition or renovation, a home warranty can be worth it, providing value whether you’re staying in your current home or planning on selling it. They insulate you from repair costs when things in your house break down and provide peace of mind to buyers that they won’t face those costs shortly after closing.

With an average cost of $1,050 per year and a typical return on investment (ROI) of around 100%, a home warranty might seem like a no-brainer if you’re selling your home, but there are many factors that affect the return you’ll see. In this guide, we’ll explain how to determine if a home warranty is worth it for you.

Factors That Influence Home Warranty Value

Before you dive in and buy a home warranty, there are a few key things you should consider that affect how valuable the coverage will be for you or a prospective buyer.

Buyer Perception

If you’re selling your home, appraisals and comparative market analyses can help determine what your home can sell for, but the actual value is what a buyer is willing to pay, which all comes down to buyer perception. If an individual buyer looks at your home and perceives more value from add-ons, parking, energy efficiency upgrades, or home warranties, then those items contribute to a higher property value.

That means that there’s no guarantee that buying a home warranty will make your home more enticing to buyers, but in many cases, most buyers will see value in not having to worry about repair costs for appliances or home systems that break down after closing. This is a big reason why sellers pay for home warranties when listing their homes for sale.

Home Age

Whether you’re selling your home or not, the age of your house plays an important role in the value you or a buyer will see from your home warranty. Older homes with aging appliances and home systems come with a higher risk of unexpected breakdowns, while new construction often has the lowest risk of these problems.

In most cases, the older your home and the appliances and systems inside are, the more value you or a buyer will see in a home warranty. New construction may also come with a new home warranty, which would mean buying additional coverage would be less valuable.

Your Local Market

When you’re selling your home and trying to figure out if a seller’s home warranty is worth buying to entice a buyer, your local market can affect the value you’ll see.

In what experts call a “buyer’s market,” the supply of homes is high, and buyers have plenty of options to choose from when it comes to properties. In these markets, a home warranty can help make your property stand out from the competition, which could mean a shorter time on the market and a higher sale price. Ultimately, home warranties are often worth it in a buyer’s market.

In a seller’s market, there’s often a shortage of properties in proportion to the demand, and multiple buyers may compete for a single home. In these cases, you may still see some added value from a home warranty, but it’s less likely to make a difference than in an area where supply is high and demand is low.

Home Warranty Cost and Coverage

Of course, the cost of a home warranty is an important factor to consider whether you’re buying a home warranty for yourself or for a future buyer, but you really should consider both the warranty cost and the coverage you get together. Warranty coverage from local home warranty companies can cost anywhere from around $560 to over $1,200 annually, but the value really comes from the specific coverage.

It’s a good idea to read through a sample contract from each provider you’re considering and look for a few key things to determine the value you’ll get for your money.

• Coverage caps: Most home warranty companies have coverage caps, which are the maximum amounts they will pay out either per item or per year in total. Higher coverage caps are more valuable to you or a buyer, but they cost more.

• Included appliances and systems: Home warranties cover a specific set of appliances, home systems, and other components. The more items you have covered, the higher your cost will tend to be, but the more potential value you or a buyer will see.

• Maintenance perks: Some home warranties include things like annual HVAC tune-ups, which can help your home run more efficiently and reduce the risk of your system going down or sustaining damage. You can see long-term value with perks like this, in addition to savings on utility bills due to increased efficiency.

• Service fees: Service fees are fees you pay per service call to get a repair done on a covered system or appliance. Higher service fees cost you more over time if you make claims, which detract from the ROI.

How to Estimate the Added Value of a Home Warranty

Since there are so many moving parts when it comes to how valuable a home warranty is, it’s a good idea to focus on a few key things to see whether it’s worth the investment.

• Think about the risk of a breakdown: Whether you’re buying a home warranty for yourself or to entice buyers to purchase your home, considering the risk of a breakdown is a good place to start to determine value. If your home systems and appliances are old, a home warranty is more likely to be worth it, as you or a buyer will be more likely to call on the coverage to save money on repairs. For example, hiring a plumber can cost up to around $1,000, so coverage for a single plumbing issue could make your home warranty worth it.

• Consider how competitive the market is: If you’re selling your home, think about how competitive the market is. Consider asking your real estate agent if they believe a home warranty could help make your home more sellable or fetch a higher sale price from buyers. Home warranties are more valuable in more competitive markets where you might need an edge to sell quickly.

• Determine how valuable peace of mind is: A home warranty could be worth it from a financial perspective if you’re buying coverage for yourself, but there’s always a chance that you’ll never have to call on the warranty. Think about how valuable the peace of mind that you won’t be on the hook for repair or replacement costs is, as there’s a chance that’s all the value you’ll get from your coverage.

• Look at coverage caps and payout likelihood: Finally, consider the coverage caps included in the warranty before purchasing coverage, and try to estimate the risk of an appliance or system breakdown in the contract term. It’s also a good idea to read through company reviews for providers to make sure they’re honoring their promises of coverage.

Cost of a Home Warranty

Home warranties cost around $1,049 per year, on average, and annual prices can range from around $560 up to $1,240. You’ll also have to pay a service fee each time you call on the warranty for coverage, which costs between $85 and $125 in most cases.

Is a Home Warranty Worth It?

Home warranties can lead to significant savings on home appliance and system repairs and replacements, but they also provide peace of mind that you won’t run into unexpected out-of-pocket costs for those services during your contract term. In these cases, home warranties are similar to insurance coverage when it comes to value. For many buyers and homeowners, the peace of mind alone is worthwhile.

Home warranties tend to be more valuable from a financial perspective if you have older appliances and home systems and if the coverage caps included in your warranty are high enough to cover major repairs and full replacements of the components they cover.

How Angi Gets Its ROI Data

Home is the most important place on earth, which is why Angi has helped more than 150 million homeowners transform their houses into homes they adore. To help homeowners maximize the value of their investments, we gather ROI data from reputable sources, including industry reports, real estate studies, and interviews with market experts. We calculate the average resale value for projects by multiplying the ROI against the project’s average cost according to our cost data, which is sourced from thousands of real Angi customers. 

Want to help us improve our data? Send us a recent project quote or home appraisal value to [email protected]. Quotes and personal information will not be shared publicly.