Home Warranties Often Aren’t Worth It: How to Judge for Yourself
Often we are asked by our owners and investors “Are Home Warranties a good idea?” Please review this interesting article just published by MoneyTalks News , Marilyn Lewis on May 5, 2016
In the article, Marilyn describes the pros and cons of Home Warranty Policies. If you are interested in having a home warranty on your property please contact our office and we will be glad to provide you a variety of policy brochures from some of the Valleys providers!
~Lorrie Baker, Desert Wide Properties
A home warranty can help you repair or replace home appliances and systems. But don’t enter into a contract before asking these key questions.
If you’ve bought a home recently, you may have purchased or received a home warranty.
However, consumers frequently expect more from these plans than they deliver.
Home warranties aren’t insurance policies. They’re service contracts. Like a service contract that covers repairs to your computer, a home warranty is a company’s agreement to pay for fixing — and, if necessary, replacing — specified home components.
A home insurance policy, in comparison, covers losses if your home and its contents are damaged or lost to theft, fire or other causes.
A basic home warranty costs about $350 to $500 a year or more. A warranty typically covers kitchen appliances, plumbing, water heater, furnace, sump pump, whirlpool tub, and ceiling and exhaust fans, Angie’s List says.
“Enhanced” plans, purchased for another $100 to $300, provide added coverage for such things as a washer and dryer, air conditioning, refrigerator and garage door opener. Optional items can be added, including pools and septic systems.
You may be covered already
If someone gives you a home warranty, accept it — at least while it’s free. But understand that, even with someone else paying the premiums, you’ll likely pay a service fee — typically $50 or $75 — each time you need a repair, according to Angie’s List.
Before buying a home warranty, learn what coverage you may already have. For example, if you’re buying a newly built home:
- The home appliances and systems typically have one-year warranties.
- Most states require builders to warranty the home’s structural elements for up to 10 years.
Also, when you buy new furnishings and appliances, use a credit card that extends the product’s warranty. That can add as much as an extra year of protection.
Is a home warranty right for you?
Sellers may offer a year’s coverage as an incentive to home shoppers. Owners of new homes frequently pay the premiums after their free year expires.
Real estate agents sometimes give home warranties to clients as a thank you gift for purchasing a home. Some buyers of older homes find that a warranty gives them confidence.
Other homeowners decide they’re better off setting aside savings to cover home repairs and replacements.
One way to think about your needs: Compare the age of each covered item with its average life span. To do so, use this chart from the National Association of Certified Home Inspectors.
With expensive components near or past their life expectancy, a home warranty might be a good idea. Components that have pre-existing problems, however, typically are excluded from protection.
Buyers who purchase a previously owned home inherit used appliances and home systems with wear and tear. A home warranty can help cover the cost if things break down.
New Jersey real estate agent Lorraine Labonne-Storch told HSH.com that a few days after closing on a home she purchased, the boiler caught fire. It cost her $12,000 to replace.
A home warranty would have covered a portion of the cost, she said. She’d had the option to purchase a warranty when she bought the house, but declined it.
However, home warranties top the list of complaints received by Angie’s List. One reason, the site says, is the difference between customers’ expectations and what the plans actually deliver. Homeowners also complain about the quality of service from warranty companies.
Before buying a home warranty, read the contract and understand exactly what it does and does not cover. For example, some contracts will not provide coverage if:
- You didn’t maintain the appliance.
- The appliance was installed incorrectly.
- The appliance had too much wear and tear.
If you haven’t read it carefully, be prepared for surprises. Don’t assume:
- Your policy will replace a faulty component. The warranty company may insist on repairing it instead.
- You can call your favorite service provider. Home warranties usually require you to use a contracted servicer.
- The warranty will cover the entire cost. Although she would have been happy to have it, Labonne-Storch said the home warranty she declined would have paid only up to $1,600 to repair or replace the $12,000 boiler.
Find out what’s covered, and what the warranty provides. There may be exclusions and limitations. Perhaps the refrigerator is covered, but the ice maker is excluded. Claims may be rejected because of pre-existing problems or insufficient maintenance.
Learn who will perform the repair work. Also, find out if you can cancel the policy. Most contracts allow a 30-day “free look” that allows a buyer to cancel within 30 days and get a full refund, says the Service Contract Industry Council.
Vet the company
Research a company using these sources:
- Better Business Bureau: Type in your city’s name. On the next page type the company’s name. Or type “home warranty.” You’ll see if a company is BBB accredited. That means a company agrees to resolve complaints with the BBB and pays an accreditation fee of anywhere from $400 to several thousand dollars. See company ratings, if any, and a summary of complaints to the BBB.
- Your state attorney general’s office: Find yours from the National Association of Attorneys General.
- Your state insurance commissioner: Locate yours with this National Association of Insurance Commissioners map. Although home warranties aren’t insurance policies, 32 states require companies offering warranties to register or be licensed by the state’s department of insurance.
Residents Encouraged to Take Action during National Home Safety Month in June
New smoke alarm regulations can help keep Phoenix families who live in homes with battery-powered smoke alarms safer, while also reducing smoke alarm maintenance. As of April 2014, homeowners must install 10-year, sealed-battery smoke alarms when replacing outdated, missing or damaged units. Alarms like the Kidde Worry-Free sealed-battery smoke alarms comply with this new law. Kidde Fire Safety, a leading manufacturer of residential fire safety products, is a part of UTC Building & Industrial Systems, a unit of United Technologies Corp. (NYSE: UTX).
Missing or disconnected batteries are the main reason smoke alarms fail to operate in residential fires. A recent survey conducted on behalf of Kidde ranked late-night low-battery chirps as the top smoke alarm annoyance, yet 40 percent of respondents would opt to either disconnect the alarm or wait a day or more to replace the battery. A long-life battery sealed inside an alarm makes it virtually tamper-proof and eliminates the risk associated with disabling the alarm.
Phoenix city ordinance G-5898-2014 specifies that a smoke alarm cannot remain in service longer than 10 years from the date of manufacture. Smoke alarms are permitted to be solely battery-operated in existing buildings where no construction is taking place, provided the smoke alarm is UL-listed with a sealed 10-year lithium battery.
“Long-life alarms provide continuous protection for a decade, and national fire experts like the National Fire Protection Association (NFPA) and National Association of State Fire Marshals (NASFM) recommend their use,” said Chris Rovenstine, vice president, sales and marketing, Kidde. “We applaud the city of Phoenix for proactively instating the 10-year lithium battery requirement for all residential homes because we know it will help save lives.”
Ten-year sealed-battery smoke alarms, such as Kidde’s Worry-Free line, are available at home improvement retailers and cost between $25 and $50. With no need to replace batteries, consumers will save about $40 in battery costs over the life of one alarm. After 10 years, the alarms will sound a warning to indicate it is time for replacement. For more information, visit worryfreealarm.com.
Kidde is a leading manufacturer of residential smoke alarms, carbon monoxide (CO) alarms and fire extinguishers, and has been delivering advanced fire-safety technology since it produced the first integrated smoke detection and carbon dioxide extinguishing system more than 90 years ago. Kidde is a part of UTC Building & Industrial Systems, a unit of United Technologies Corp., a leading provider to the aerospace and building systems industries worldwide. For more information, visit www.kidde.com or follow @KiddeSafety on Twitter.
Written by Lucas Hall at landlordology.com
If you’ve ever bought a house, you were probably given the opportunity to buy a home warranty in conjunction with the purchase.
Home warranties are some of the most-marketed products in real estate, and often come with referral bonuses. But are they worth it?
In my experience as a homeowner and landlord, I’ve had contracts with four of this country’s leading providers. I’ve learned that it’s a game of risk vs. reward and value vs. cost.
It’s a game of risk vs. reward and value vs. cost
This article discusses the common questions and concerns regarding home warranties, including:
- What is a home warranty?
- What is covered?
- How much do they cost?
- Are they worth it?
What Is a Home Warranty?
Simply put, it’s a home services contract that will pay for necessary repairs due to common maintenance issues, and for the subsequent replacement of appliances if they cannot be repaired.
The home warranty industry was started in 1971 by American Home Shield and has grown into a competitive nationwide industry occupied by dozens of companies. However, it’s important to realize that though these policies are called “warranties” they are not actually warranties in the common sense of the term.
It’s Not Actually a “Warranty”
A traditional “warranty” in the general sense, is a guarantee towards the quality of a product or service made by the seller to the buyer.
A “home warranty” is not a guarantee, but rather a contract to provide repair and/or replacement services for major appliances and home systems that fail due to normal wear and tear.
These service contracts will not cover every repair or issue that you may have.
In fact, common consumer complaints show that many of these companies try to evade coverage by citing homeowner’s maintenance negligence or claiming the issue is a “pre-existing problem.”
What Does the Policy Cover?
Typical basic policies cover home appliances, heating, cooling, plumbing, and electrical systems.
For a premium, most providers will cover roofs, wells, pools, plumbing and lighting fixtures, and lawn sprinkler systems.
Structural systems are not typically covered under a home warranty policy, but rather by a traditional primary home insurance policy.
|Built-in Microwave Oven
|Garage Door Opener
|Stand Alone Freezer
|Lawn Sprinkler System
Always Read the Fine Print
Actual coverage varies significantly between the plethora of home warranty companies. Most companies will promise you the world, but many consumers often find that their contracts are riddled with exclusions and denial provisions.
For example, most basic policies include plumbing, but not if the pipes freeze.
Further, the actual parts that tend to break most often, like a shower diverter or sink faucet, are not covered at all. When the contract refers to “plumbing,” they only mean the actual pipes in the wall.
It’s important to remember that home warranty companies are for-profit entities and they will pursue their best interests, not yours.
Home warranty companies are for-profit entities
and they will pursue their best interests, not yours.
Check the Maximum Allowances
Though “heating” is typically covered with the option to replace the furnace should it not be repairable, the contract might specify that the insurer will only pay up to $1,000 toward a replacement, at their option.
Though helpful, most furnaces cost between $3,000-$7,000, leaving the consumer to pay the difference.
Further, the homeowner does not get to choose whether it’s time to replace the unit or not. The warranty company could opt to issue a payout, and let the homeowner deal with it alone.
By that point, the furnace has been broken for at least a week, the tenants are asking for a rent refund, and the policy holder must coordinate the repair with another service company.
How Much Do They Cost?
Besides Cozy, it’s hard to find products that provide incredible value at little or no cost. Like most warranty and insurance products, the cost of a policy depends on the amount of coverage you buy.
Again, most companies have both basic and premium policies that you can purchase, but they will all insure specific items, such as hot tubs or solar panels, for an extra fee.
In my experience, policies range from $400-$800 per year for a typical single-family home, depending on the amount of coverage that is purchased.
Most companies will validate their price by providing cost-comparison charts of common repairs, such as the one below, but fail to mention the maximum payouts or exclusions previously mentioned.
|Average Replacement Cost
|Average Repair Cost
|Cost w/ Home Warranty
|$100 service fee
|$100 service fee
|$100 service fee
|$100 service fee
|$100 service fee
|Washer or Dryer
|$100 service fee
|Source: Estimates are based on national independent service contractors
Though such comparisons are mostly accurate, the dirty little secret of the insurance industry is that these companies make their money because they know most people don’t fully utilize the service.
…they know most people don’t fully utilize
Deductible/Service Call Fee
The most common deductible for home warranty policies come in the form of a service fee.
When a repair technician shows up to inspect and service the property, the policy holder is responsible for providing a small payment directly to the technician, regardless of the work being performed.
In my experience, this deductible typically ranges from $75-$150 per claim. HMS National has the only policy that I’ve seen with a $0 deductible, however their premiums are slightly higher. Perhaps it balances out in the wash (pun intended).
Most companies contractually have a 30-90 day waiting period between signing up and when the consumer can actually use the service.
This waiting period is designed to prevent a policy holder from making a claim on a pre-existing condition, but I think it is a horrible way to start out a new business relationship.
It’s like saying “Yes, you must pay the bill, and no, you can’t use the service yet.” Can you imagine if car dealerships made you pay for a car, but then you couldn’t drive it for 90 days?
Yes, you must pay the bill, and no, you
can’t use the service yet!
These waiting periods can be quite frustrating when a new repair issue surfaces prior to the waiting period ending – leaving the policy holder to seek help elsewhere. What a bad first impression!
Is a Warranty Worth Buying?
Whether or not you choose to buy a home warranty is a personal decision based on multiple factors.
Personally, I typically purchase a home warranty for the first 1-2 years on every property that I acquire.
After a few years, I usually feel that I have a better understanding of the status and condition of the home and its appliances, and usually choose to self-insure repairs via an emergency fund from that point on.