Today's homebuyer is typically well educated, discriminating, and demanding. For most of us, the home we buy will be our biggest investment and our most important financial asset. Many consumers would not consider buying a new car or even a major appliance without a manufacturer's warranty. In the same way, more and more homeowners choose an extended warranty to provide additional coverage and the added security it provides for some of the higher-ticket items in a home.

While many builders offer some type of warranty, extended-coverage warranties cover unexpected repair and replacement costs for systems and appliances that may malfunction after the standard warranty has expired. The warranty coverage on many systems and appliances, even those originally covered by the builder or the manufacturer, usually expire after one year. For example, the average repair cost for a water heater is $80 to $200 or more. The average replacement cost for a water heater is between $400 and $700, while a heating system can run from $1,300 to $3,500 or more. In other words, repairing or replacing home items can be very, very expensive.

As our homes become increasingly high-tech, repairs on items such as heating and cooling systems, dishwashers, built-in microwaves, and trash compactors, just to name a few, will become increasingly expensive. In addition to saving hundreds of dollars through an extended home warranty, homeowners are often able to take advantage of lower service fees through preapproved service providers in much the same way that health insurance companies offer special rates for preferred providers.

Before buying a home, it is extremely important to ask the right questions and make sure you understand exactly what the builder's warranty covers. Ask about any nonstandard features, which you may have negotiated into your contract with the builder. Obtain a copy of your builder's warranty in advance and make a list of any questions you may have so you know exactly what your warranty covers, including the contact information for any systems or appliances that have their own warranty protection beyond the coverage life of the builder's warranty. By being well informed about the warranties that come with your new home, you will be well-equipped to make the right decisions when considering the option of extended warranties.