The Dark Side of Home Warranties

Disclaimer: This article is not meant to knock a particular home warranty company or person within. This was written as a glimpse of what goes on with home warranties and how it effects the home owner. Our experience of home warranty companies might not reflect what happens in other areas of the country.

As contractors, when we first start out learning the trade, it is drilled into us to never talk bad about other contractors or anyone else in the industry. However, it is very difficult for us as air conditioning professionals to be in the business of serving people while experiencing all the negative that surrounds home warranties and stay completely silent about it.

False Sense of Protection

Most consumers first get a taste of a home warranty because it was sold with their home when they moved into it. They then renew every year with the assumption of when something goes wrong with their home, it will be covered. Homeowners pay a service fee (deductible) the first time a service provider is dispatched by the warranty company to make a repair.

Every week we get many calls from uncomfortable homeowners who have a home warranty and they are in a panic. Most have been without air conditioning for 3+ days because the home warranty company and the approved contractor they recommend to come out can’t get to them for several days.

The devil is in the details.

Home warranty companies are not on the consumers side (nor the contractors side). They are NOT in business to spend money. They are simply an insurance company looking to protect their interests and reduce claims.

On the home warranty contract, there is some very fine print. Most of it states obvious reasons that a claim would not be approved. But a lot of people don’t see the deeper motives and issues surrounding their business model. Here are some helpful points you should consider before moving forward with signing a home warranty contract.

• You are most likely going to pay a lot more than just your deductible. If you read the fine print on your home warranty contract, you will find out that it states you will sometimes have to pay for miscellaneous parts and labor that is not covered on some claims. They do not cover code upgrades, rust, equipment not properly maintained (cleaning & etc).
• Be prepared to spend long amounts of time on the phone. Many home buyers have to call in the same repair claim multiple times. This is typical with most home warranty companies. Remember, the home warranty company is a for profit company that will try and do the “least expensive” repair. Example, your 18 year old air conditioning unit stops working. The warranty company repairs the unit and everything seems to be working OK. Even though the system probably just needs to be replaced with a newer more efficient unit. Your A/C unit stops working again a week later. The warranty company authorizes another repair. A/C unit is working fine but then again a week later the unit fails. The other bad part is the warranty companies are overwhelmed with calls daily and you will have to talk with rude customer service reps who just want to get you off the phone.
• Lower level of skill & quality from service companies. There are very few contractors who will work with warranty companies. The ones who do work for them are not paid even close to a fair amount for the repairs and either have to cut corners on repairs or find other “non-covered items” to repair/replace just to make any money on the trip out there. The lower than normal pay from the warranty companies also creates a spiral effect forcing the contractor to hire less qualified technicians, do shoddy work, fail to do background checks on employees or more drastic, have to shut the business down. It is very common for contractors who do work for warranty companies to pay their technicians a percentage of invoice sales. This can create a very bad environment for unnecessary repairs and dishonesty. 95% of the time, you have to wait days to receive service to address your claim and it is likely you will have to deal with rude and unprofessional companies just out there turning em and burning em.
• Agent Bonuses/kickbacks. Most home buyers are not aware that some real estate brokers receive a small bonus for every sold home warranty policy. The question needs to be asked: who is really the main customer for the home warranty companies.
• Inspections & Pre-Existing Conditions. You need to make sure all of your mechanical equipment (furnace, A/C, electrical, etc) and appliances have been inspected. If any service professional or home inspector finds even a minor problem it should be addressed in a repair request to the Seller. If an item is not working satisfactorily prior to closing then it will not be covered under most home warranty plans. Lack of routine maintenance can also create another avenue for warrant denials. This is a understandable part as the warranty company should not have to pay money on equipment that is not properly maintained.

If you keep in mind the true cost of the warranty (contract premiums, deductibles, time spent on the phone arguing, delays and lack of quick resolution, dealing with less than stellar service companies, the fine print, agent kickbacks), you might want to rethink how to spend your hard earned money.