Why Home Warranties Are No Guarantee

Generally speaking, home warranty service companies don’t fare well in reviews. Members misunderstand or disagree with what their warranties claim to cover. Often the quality of the repair work is mentioned in the negative review.

Is a Home Warranty Worth It?

In order to minimize misunderstandings, experts stress the importance of reviewing and making sure you understand the service contract before purchasing a home warranty. “Like anything else, make sure you shop around,” says Tim Meenan, executive director of the Service Contract Industry Council, a national trade association that supports home warranties and advocates the regulation of the industry. “Read what’s covered and the exclusions. If you read those two sections, you’ll have a good idea if it’s a policy you want to buy.”

A home warranty service contract is not the same as an insurance policy that protects you from loss. It is meant to provide service, repair or replacement on a home’s appliances and major systems, such as heating and electric. Typically, contracts are good for one year.

“It gives people peace of mind,” he says. “Lots of folks can finance a service contract but cannot finance a new $4,000 HVAC unit.”

The average cost of a basic coverage home warranty plan ranges from $350 to $600 a year. The cost of an enhanced plan can add $100 to $500+ depending on the desired amount of additional coverage. Some home warranty companies offer additional coverage for certain, more expensive items, such as a well pump or pool, for an additional fee. Regardless of the type of plan, homeowners typically pay an additional service fee ranging from $50 to $75 at the time of each repair.

Perhaps it would be better to put that money in a savings account. By making a monthly deposit into an emergency fund, homeowners can have cash ready for the next emergency AND have the freedom to choose the repair company they have come to know rather than leave it up to the warranty company to select a sub-par repairman.

Many realtors recommend that sellers provide a home warranty contract for the new owner. One of Angie’s List members said that even though the American Home Shield warranty came with the house, it did not pay to keep the contract.

“I did the math, and I figure you’re paying all this money for the warranty and then you pay $50 to $75 for every service call – it really doesn’t add up,” he says. “Plus, the people they sent to do the work were late and unprofessional. I got real put off.”

Not every warranty company offers coverage to homeowners nationwide, but the industry is regulated in all 50 states under consumer protection laws. Also, they’re required to be licensed or registered by the department of insurance in 32 states, according to the SCIC. North Carolina regulates service contracts under the Attorney General, while Texas regulates them through the state’s Real Estate Commission.

Gwen Gallagher, president of Old Republic Home Protection, says an Old Republic home warranty strives to provide comprehensive coverage, but inevitably some claims will be turned down and could result in unhappy customers. The most common reasons they deny service is because the item, such as a broken window, wasn’t covered under contract, or the service, such as replacing missing parts or components, was excluded.

Homeowners also are denied coverage if the item was not in good working order prior to purchasing the home.

To obtain the most value from a home warranty, Gallagher says it’s important plan holders read and understand the coverage that’s offered, and the limitations.

Quality HVAC Contractors are Key

Eric Lipp, owner of Patriot Air in Tempe, Arizona, is willing to work with several home warranty companies and appreciates the business, but also understands he needs to keep costs down.

“When you’re a startup company, it’s a great way to get free leads,” he says. “[Home warranty companies] know what things cost, and they reward contractors who have the cheapest ticket by giving them more work.”

“We’ve been approached by several of them, but it’s really not advantageous for us,” says Mike Fedor, residential service manager of WF Hann & Sons in Bedford Heights, Ohio. “They’re very cookie cutter as far as repairs are concerned.”

“Their pay scale is nothing we want to mess with,” he says. “They’re looking for people to work for little money and customers might not get good, quality work.”

Dennis Mollgaard, Jr. of Tiger Services says he’s not willing to sacrifice quality, so he does not work with home warranty companies.

Our goal at Tiger Services is to provide our customers with dependable quality work that solves problems rather than creating new ones. Call us at (210) 344-0060 and avoid all the hassles of the home warranty companies.

Editor’s note: This is an updated version of an article originally published on Angie’s List on May 4, 2011.