Even in a frenzied market, home warranties are no substitute for inspections

Home buyers remain in a tough bind, chasing after homes amid steeply rising prices.

The average price per square foot in Chicago and Dallas is up more than 25% in the past year. Let's not even discuss what is going on in coastal cities.

That's led to buyers doing whatever it takes to stand out in what they perceive to be a bidding war. The National Association of Realtors reported earlier this year that one in four homebuyers didn't insist on a home inspection before closing a deal.

If you're considering waiving the home inspection contingency on a bid, that's your risk to bear. But don't be fooled that a home warranty the seller may have advertised with the listing is any sort of meaningful protection.

A solid home inspection will look for structural defects and give you a detailed report on the remaining life expectancy of big-ticket items such as the roof and the HVAC. A warranty typically won't cover those big-ticket items.

The trade association for home service contracts (that's what a home warranty is) points out that, "Home service contracts are specific and do not include everything in your house and most do not cover home foundations, walls, structure or finish."

And the fine print is typically a dive into how limited your protection is. Some policies place a strict dollar limit on what they will cover to replace something, while ticking off all the things the warranty won't cover.

Also be prepared to show maintenance records for any appliance you want fixed. You can be denied coverage if you can't prove it's been properly maintained.

Even if the seller paid for the first-year premium for a warranty (the annual cost can be $500 or more per year), if you run into a problem and the home warranty provider agrees to send someone out to fix it, you're on the hook for the call fee. That can run $75 to $125 or so. Warranty companies get to choose who shows up at your house. You don't need an MBA to appreciate that they have a business incentive to farm out work to the lowest bidder.

And all that presumes your seller bought a policy from a reputable warranty company. Be careful relying on online reviews and ratings.

Even if you decide to go the risky route of waiving the home inspection contingency on a bid, your first purchase after landing the home should be a home inspection.