Are home buyer resale warranties a good idea?

We moved in the spring, and it seems like the move has created as manyquestions as it answered: What should I do with my old stuff, sell it or trade it? Which digital services do I really need at the new house? Are mortgage-savings programs a good idea?

The newest question is whether or not to get a "home buyer resalewarranty" (not to be confused with a home warranty offered by a builder).If you're unfamiliar with these, they're more or less a service contract onvarious components of your house, such as appliances, HVAC, and water heaters.They are usually considered at the onset of a relocation, but many can bepurchased at any time.

The one we're being offered is by American Home Shield. It costs $356/yearfor the basic plan ($512/year for the "Enhanced Plan") and works likethis: when a covered item breaks down, you can contact them by phone or onlineand request a service call. After the request is processed, one of their"approved and insured contractors" will come out to diagnose and fixthe problem. The cost for this "Trade Service Call" is $60.

Sounds reasonable, but let's look at some of the fine print:

• "This Trade Service Call Fee applies to the initial visit by a contract for each covered trade. This initial fee covers any additional contractor visits required for the same breakdown within 30 days of the original service date. Additional charges may apply for some repairs and replacements."
• "... Warranty covers the repair or replacement of many system and appliance breakdowns, but not necessarily the entire system or appliance."
• "... may provide cash back in lieu of repair or replacement in the amount of AHS's actual cost to repair or replace such item, which in most cases may be less than actual retail pricing."
• "... [items needing to be replaced] will be replaced with units having comparable features, not necessarily the same dimension, color, and/or brand."

Hmmmm... you thinking what I'm thinking? That's a lot of fine print. Let me see if I've got this right:

My two-year-old $1,100 Kenmorestainless steel 3 x 3 x 6-foot side-by-side fridge is acting wonky. So I call,a technician comes out to "fix" the problem and I shell out 60 bucks.31 days later, it's acting up again so I reluctantly make another call. Afterparting with another $60, tech tells me it's unfixable.

I call AHS and they give me two options: I can either have the $600 it wouldcost them to replace it with a "comparable" fridge, or they'lldeliver me a brand new 2.5 x 3.5 x 6.2-foot Hotpoint bottom-freezer... inbisque.

This is a real possibility.

So let's do the math: $512 for the Enhanced Plan (basic plan doesn't coverrefrigerators) + $60 + $60 = $632. So in essence I've either payed $632 inorder to get $600 (which isn't usually a good deal) — OR — I paid $632 for afridge that doesn't match ...have the same features... or fit (which isarguably an EVEN worse deal).

Of course, while this is a possibility, it isn't a certainty. Instead, hecould have fixed it the first time he came out and I could have no moreproblems the rest of the year.

Then I'm only out $572 ($512 + $60) for a repair that, according to AHS'sliterature, averages $157. In that case it would have been worth it becauseI... wait a minute... no... no, it still wouldn't have been worth it. I justflushed $415 down the toilet!

And speaking of toilets, the average cost to repair one is $70 and theaverage cost to replace one is $285. So if my toilet broke instead ofthe fridge, I just paid $572 to have an old one fixed when I could have spentthe same amount and bought TWO brand new ones!

So you can see, the fewer things that break, the more "expensive"this coverage is. If you really want to get your money's worth, you need a lotof things to break. I don't know about you, but I'm not big on rooting for myhouse to fall apart so that I can get my money's worth out of a warranty. Cometo think of it, kinda sounds like insurance... EUREKA! Call it a warranty, call it a servicecontract, call it whatever you want, but we've discovered the truth: it's justanother form of insurance.

Nothing wrong with insurance as long as you know that's what you're getting.So back to my original question, are these warranties a good idea? If theseller pays for it, then sure, why not. But if it's coming out of your pocketthen consider the age of the home, its various components, and what exactly iscovered in order to make an informed decision. Again, pay attention to the fine print.

In our first home we chose to get one because we were first-time home buyersand it gave us a little peace of mind (which is, perhaps, the biggest sellingpoint). But when we had a plumbing issue within that first year, since it hadto do with pipes outside the footprint of the walls, it wasn't covered (said itright there in the fine print and acustomer service rep confirmed it for me, unfortunately).

So will we get a "home buyer resale warranty"? Doesn't look likeit. The home is only four years old and we have adequate savings to cover anybreakages that would have been covered by the warranty. What we could do eachyear is put the contract fee (or premium, pending how you look at it) in aseparate savings account just for home repairs (not unlike what I suggested for pet insurance). That way if we need it, we'll have it. Andif we don't need it, at least we didn't wash it down a drain that never neededfixing.
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Matthew Pryor in his 8th year with Sound Mind Investing, now serving as Director of Operations. Learn more about Christian investing and finances at the Sound Mind Investing website.