New Home Warranty: Is It Worth the Expense?

Buying a new home is a significant investment. For many people it is the most important investment in a lifetime. You wouldn't think of buying a new refrigerator or a new car without a warranty. Buying a new home without a warranty is a lot like going canoeing without a paddle. A warranty is your safety valve for your new home. If anything goes wrong, you're covered.

When you buy a house, you are buying a set of potential problems. You do not want to tread those waters without protection. Countless things can go wrong after closing. The furnace or hot water heater may fail. There may be faulty wiring. The plumbing might spring a leak. All of this may wind up Home costing you hundreds, even thousands of dollars.

For new homebuyers, state law and state building requirements provide for four forms of new-home protection:

Implied Warranties: This requires builders to construct homes that are "reasonably fit" for use as housing. It must be constructed in a "good and workmanlike" manner, and it must be "habitable." These are vague and debatable standards that are little more than a starting point.
Imposed Warranties: These are standards that are imposed by the state government, that bring a house up to state code. For instance, a water pipe coming into the house must be a certain size, and it must be buried at a certain depth to prevent it from freezing. If a building inspector sees that it has been done wrong, the builder must correct things before the home can be occupied.
Express Warranties: These are written promises from the builder that spell out construction standards. Usually these warranties are limited so that the builder can restrict his potential liability.
Product Warranties: Coming from manufacturers, not builders, these warranties cover dishwashers, garbage disposals, and other household appliances that come with the house. This gives the buyer some replacement or repair protection should the new dishwasher flood the kitchen floor.

Each of the above warranties do have a catch, however. All the promises, rules, and regulations mean little unless the homebuyer can get assistance when something goes wrong. The builder can refuse, stall, or may even go out of business. A new home warranty, therefore, is the best guarantee that you have for recourse, in the face of trouble. The independent and separate warranty firm is on your side. They will see that the repairs get done.

About 35 percent of new homes come with insured warranties. Builders provide the policies and include the cost in the price of the home. There are no deductibles in these warranties, and they can usually be transferred to a new buyer if the home is re-sold during the coverage period.

A typical 10-year policy covers three main areas:

Defects in workmanship and materials are covered in the first year. If there is a dispute between the builder and the homeowner, however, warranty plans often require settlement through arbitration.
Wiring, piping, heating, and air-conditioning are covered in the first and second years.
Structural problems are covered for all 10 years. This includes shifting foundations, a leaky roof, or a fallen chimney.

Independent warranty coverage is a good investment, whether provided by the builder or purchased by the homeowner. You cannot match this kind of long-term protection, simply by withholding some escrow money when you are buying your new home. This type of insurance will give you peace of mind, so that you can truly enjoy your new home.