Buyers appreciated the home warranty and they did offer protection to the seller
from some post-sale problems, but they probably weren't a major factor in choosing
a house or an agent. The early home warranty was also limited in coverage and
loaded with restrictions and exclusions. For many years they were a niche product
primarily associated with the buying and selling of property.
Now home warranties are bursting out all over, and marketing is no longer targeted
to the home seller. Warranties are available for purchase at closing from real
estate companies, whether or not they listed the purchased property. Agents
are giving one year policies as housewarming gifts to high
end buyers. Notably, agents, now familiar with the product, are buying them
to cover their own homes. Home warranties are available to everyone and they
may be an idea worth considering regardless of the age and condition of your
house.
As an example of the current marketing push, Washington Mutual Home Mortgage (a mortgage servicer) is offering its customers the chance to enroll in a home warranty program from American Home Shield. For $27 per month, payable with the monthly mortgage payment, a homeowner can insure his home heating system or heat pump, plumbing and electrical systems (including plumbing stoppages), water heater, dishwasher, ceiling and exhaust fans and more than a half dozen appliances or house components. For another $11 per month the coverage will embrace central air, washer and dryer, refrigerator, and garage door opener Other amenities such as a pool or spa or a well pump can be covered for additional premiums.
When a covered problem crops up, the homeowner does not call his regular service provider but the home warranty company (American Home Shield claims that service calls are received 24/7) which then refers the call to one of its certified contractors. A service call through American Home Shield is $45, paid by the homeowner; anything additional is covered by the warranty, including replacement of the appliance or system. (Lots of * and ** after this statement.) Warranties on new construction typically require a higher service call charge - $70 in the case of several providers we investigated.
A fairly exhaustive look at home warranties offered by a number of national companies (some names: Mutual Home Warranty, Old Republic Home Protection, HSA, AON) indicate that American Home Shield's prices and services are fairly typical as are the coverage options. Therefore, for the moment at least, we will continue using American Home Shield as an example.
A customer service representative faxed over a copy of the actual contract and responded to many questions, clearing up all of the issues raised by the asterisks and footnotes. For example, there is no waiting period except for 30 days for rust and corrosion issues. If the warranty takes affect on February 1 and the refrigerator stops working on February 2, it is covered.
Items are not depreciated. If a dishwasher is 20 years old and cannot be repaired it will be replaced with a new one with, as nearly as possible, the same features as the old. If the homeowner wishes to upgrade the appliance he can pay the additional cost to do so. American Home Shield contracts with certain appliance manufacturers (the dishwasher manufacturers were well known and carry high end as well as contractor grade products) but I was assured there is some leeway to get reimbursement from the warranty company and purchase another brand privately.
Certain components of appliances are not covered – for example refrigerator racks and shelves, washing machine soap dispensers, oven rotisseries or meat probes. Many of these exclusions are for items that the homeowner can easily purchase and install on his own and for which a service call would not be necessary.
In addition to American Home Shield we looked at promotional materials for four other national companies. There was substantial variation among them as to the appliances covered by the basic policies – trash compactors, ice makers, instant hot water dispensers, built in food centers - were a few of the items covered by some but not all warranties. The “premium” warranties pretty consistently covered clothes washers and dryers, garage door openers, central air conditioning, and refrigerators.
The cost of basic coverage varied between about $350 and $400. Premium policies ran $100 to $150 more. Warranties on new construction were significantly more expensive (these may be marketed to builders as their builder's warranty and be more comprehensive.) Service calls were typically $45 although calls for new construction were quoted at $70 in most cases. One policy offered two level pricing – a higher premium equaled a lower service call price.
Warranties are available for multi-unit properties (usually up to five units) but each unit in the building must be under warranty for common systems such as a communal hot water supply to be covered. The same applies to common systems in condominiums.
To any homeowner with aging appliances and dubious systems, a home warranty may seem too good to be true. Having never been covered by one we can only report as objectively as possible from our research and offer some suggestions before you leap.
- Request a copy of a complete contract before you sign up (some companies publish their contracts on their websites) and read it thoroughly. Check to make sure that there is no depreciation taken and that the appliances and systems you are most concerned about are covered. Be sure you understand all of the other *s and **s.
- Check out the availability of service. One company we contacted offered no warranty at all in our semi-rural area but others may not be able to deliver truly full service. Ask a customer service representative if there are holes in their service availability or slow response time for certain repairs. If they lack a certified technician for a certain problem will you be permitted to contact an uncertified local tradesman?
- Is it possible to finance the premium on a monthly or quarterly basis or must the entire year's premium be paid up front?
Finally, do an analysis of your appliances and your own attitude in these matters.
With a bunch of ten year old appliances (except for the forty year-old dishwasher,)
taking out a home warranty, particularly one that could be paid monthly, was
a no-brainer. I might not benefit this year or next, but eventually I will be
glad I splurged. As with any insurance policy you are playing the odds. Just
ask yourself if you will be able to handle paying out $350 per year for five
years with only a few covered service calls along the way or if you might be
better off putting the premium each year into a special bank account for appliance
emergencies.
