Home Warranties 101

The views in this article are my opinion based on my experiences with my own home and the information from our clients and other real estate professionals. This article isn't intended to be Legal advice nor should it be taken that way. 

If you just want to hear my two cents, keep on reading.  And if you're considering a Home Warranty....READ THE FINE PRINT!  TWICE!
 

What Is A Home Warranty?

How Can I Obtain One?

Do I Need One?

What Should I Watch Out For?

Builders Warranty!

Bottom Line!

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What is a Home Warranty?  There are several types of Home Warranties. There's the new home builders warranties that you get with a newly constructed home and there's the type of home warranties you buy for previously owned homes. Of course, if you happen to purchase a previously owned home that is less than a year old it may still be covered under the builders warranty.  Be sure to ask your Realtor, or the home sellers, for the builders information and contact that builder directly to ensure it will still be covered if you purchase it.

How do I get one?  That's the easy question. Contact your Real Estate Agent, the Listing Agent or go to the Texas Real Estate Commissions website for a complete list of Residential Service (Home Warranty) Companies licensed in the State of Texas and call the companies directly. Click here for the list.  If you're buying a previously owned home, you may be able to get the Seller to include this type of warranty at closing.  Maybe you can even get the Realtor to throw it in as part of the negotiations.  Prices usually range from around $250 to $500 per annual contract.

By the way, TREC does not regulate warranty companies that cover newly constructed homes. Those companies (which are usually risk retention groups) are not regulated by any Texas state agency.

Do I really need one?  Is this too good to be true?  Can you really buy a $150,000, 15 year old home and have everything warranted for a few hundred dollars? Well....maybe!  Did you read the fine print like I told you?  The thing about most home warranties is that they are in the business to make money and do not easily repair each and every item that fails. If at all possible, even when it's not possible, they will fix something before they ever consider replacing it.  Whoops...don't forget that mandatory service charge!  They will charge you a "nominal" fee for each and every "trade" call that you report.  A trade call meaning a plumbing repair is charged separate from an electrical call and an A/C or Furnace is charged separately, etc.

Problems for some consumers usually arise when they have a claim. They may have paid up their warranty each and every year and believed everything in their home was covered. Then on the hottest day of the summer the A/C goes out so they call the Home Warranty company who sends their contracted technician to look at the A/C. Remember...these are NOT unconditional repairs.  If the technician finds something like a compressor that has gone bad, it's usually cheaper to replace the entire unit than just the compressor in most older units.  But, if you have not maintained your A/C equipment as outlined in your contract.  Your claim MAY be denied or they MAY tell you it was a "pre-existing" condition that is not covered by your warranty.  Most companies will fix, and fix, and fix, before they ever consider replacing something.

TRUE STORY!  I know, because it happened on my own home about 3 years ago.  My 15 yr old water heater went out.  I called my warranty company who sent their tech to repair the problem.  Believe me...this water heater was on it's last legs.  Well, they repaired the problem and got it working.  Despite my attempts to get a replacement, they told me the only time they replace a water heater is if it's badly rusted and leaking at the bottom.  Paid my $45 service fee.  Hmmmmm.....

A month later, water heater again goes out.  Another $45 service fee.  This time a different tech is sent out.  Must've been his first day on the job.  I let him go about his business while I worked in the other room.  Suddenly I hear water running, this went on for a few moments when I hear him scream for HELP!  Seems he forgot to shut off the main water supply while he was working on the system.  Water was shooting out everywhere from my utility room, I immediately ran outside and turned off the main water supply.  But not before that 50 gallon tank emptied into my laundry room, hallway, dining room, living room, and two bedrooms.  And if you think that little drain pan with it's 3/4" drain pipe that "should" be sitting under your water heater is going to handle a full water heater when it blows....think again!

He phoned his company and a water extraction company was immediately sent out to clean up the mess.  I must admit, they were very fast and thorough.  And the companies insurance carrier gladly repaired the damage and I even got brand new carpeting throughout my whole house courtesy of their insurance company. 

As the "new" tech they sent back was installing my brand spanking new water heater I glanced at the information label attached to the water heater.  It was 10 years old!  But never had been used.  Seems these companies buy out old builders stock and warehouse them for just these occasions.  I got a "brand new" 10 yr old water heater.  As the technician was leaving he says "Oh, by the way, there's the matter of this $45 service fee that we need to collect for this call."

Oh well, I got a house full of new carpet out of the deal.  The next day I called and cancelled my Home Warranty.  I figured I could've bought that water heater 5 times over for the price I paid for the yearly contract and the numerous service fees.

Actually I had that home warranty for 7 years and it was automatically renewed each year and tacked onto my home loan so I really never saw the annual warranty bill.  Let's see, 7 X's $450 = $3150 plus about 6 service fees at $45 each that's a total of $3420 for the entire time I had a home warranty.  Wow, I could've bought an entirely new A/C unit for that price.  And, to have a plumber install a "truly brand new" water heater runs about $500-$600.  I'd say that home warranty company got the better of the deal here.

Stop and think about it, if they can deny a claim, then that's money in their pocket. Someplace in that fine print that I keep telling you to read are lots of disclaimers, "we won't repair if's..."  In some instances, these contracted technicians who are hired by the warranty companies do not make as much on repairs and replacements on a claim as if you just called them up out of the blue. It pays to get several opinions before making a decision.

What Should I Watch Out For?  What are my options if my warranty company denies my claim?   I've seen claims denied for very questionable reasons.  In my opinion, if a company is going to sell you a Home Warranty contract that says they are going to cover components and systems in your home, then they should cover it. End of story. If they fail to send out the appropriate people to check and make sure all the systems are installed and functioning properly, that should be their problem and you shouldn't have to pay for their lack of due diligence. However the consumer is sometimes left holding the bag even after faithfully paying their home warranty fees year after year.

In Texas, companies that sell "Home Warranties" for previously owned homes fall under the regulation of the Texas Real Estate Commission (TREC). TREC classifies these companies as Residential Service Companies. As such TREC regulates what they can and can not do. However, the Home Warranty companies still have lots of "wiggle room".  These warranties are sold to consumers as insurance against sudden repairs that are needed to major systems or components. Every company is different as to what they will or will not cover, so be very thorough in your research and by all means, read the fine print, twice!

The Texas Real Estate Commission has a complaint form you can use to file a complaint against these Home Warranty companies. If your claim is denied and you feel that the problem should have been covered by your warranty, then you may want to fill out a complaint form and send it to TREC. They will investigate all complaints filed by consumers. I've known several people who have had success getting their claims paid after filing a complaint. You can find a complaint form on the TREC website by clicking on the colored text. TREC Complaint forms.

Builders Warranty.   When purchasing a new home you will usually receive a 12 month warranty.  Sometimes builders are not too "motivated" to making these repairs as they should.  If you have provided them with a list of items that need repair and they keep stonewalling you then maybe it's time for you to file a complaint.  Since the Texas Real Estate Commission has no jurisdiction over a builder you may wish to file a complaint with theTexas Residential Construction Commission.  You may also wish to consult with a private attorney for advice.

If you are close to the end of your 1 year timeframe and you have never had your home inspected you may also consider having it inspected so that you know exactly what to provide to the builder as to what needs to be repaired.  At the end of the inspection I will provide you with a list of items that you can then present to the builder for repair and if they have any questions they may also contact me so that I can assist you in obtaining the proper repairs.

Bottom Line:  If I were buying a previously owned home today, I'd thoroughly inspect it by using an experienced and licensed Professional Home Inspector.  I'd try to get the sellers or the Realtor to include a Home Warranty for the first year.  After a year living in your home you will get a feel for it's true condition and can make an educated decision as to whether or not to extend your warranty.  In my opinion, I'd put that money in the bank and hire my own repair people to handle the problems as they occurred.  But, that's just me.

When Buying Your Next Home, Don't Be Surprised......BE SURE!

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