What Is a Residential Service Contract?
Also known as a home warranty and home service contract, a residential service contract is a policy that covers repair and replacement costs for home systems and appliances that fail. Some of the most common items protected under these plans include your dishwasher, stovetop, washing machine, dryer, refrigerator, air conditioner and heating system.
A residential service contract is distinct from a manufacturer’s warranty, which is specific to a particular system or appliance and only covers repairs that are necessary because of defective materials or faulty workmanship. Additionally, manufacturer’s warranties typically expire after a few years, while a residential service contract can be renewed each year.
Residential service contracts are oftentimes confused with homeowners insurance. Although both plans protect your home, a residential service contract protects essential systems and appliances while homeowners insurance protects your home from damage caused by a catastrophic event, such as a fire.
How Does a Residential Service Contract Work?
A home warranty subscription usually lasts for one year and is paid on a monthly basis. When a covered item malfunctions due to normal wear and tear, you submit a claim with your provider, who will schedule a time for a vetted service technician to evaluate, diagnose and repair or replace your damaged item.
When the technician visits your home, you’ll owe a service fee set by your home warranty company. Most service call fees range between $75 and $125.
5 Residential Service Contract Red Flags
While home insurance plans are usually required by law, they tend to be more concerned with catastrophic damage. They don’t cover areas like ordinary wear and tear or appliance replacements. That’s where home warranties come in.
Your home is one of the largest purchases you’ll ever make. It’s only natural to want to protect that investment with a solid warranty. However, you’ll need to be careful who you sign with. Here are a few areas to keep an eye out for, and tips to help protect yourself from people trying to fleece you.
Generally speaking, I’d argue that home warranties are 100% necessary. Your house, after all, is likely the largest purchase you’ll ever make. It’s extremely important that you take whatever measures necessary to protect that investment.
Unfortunately, there are plenty of crooks in the warranty and insurance space who fully understand this. They are more than willing to exploit you if you’re not careful. With that in mind, I’d like to go over a few of the red flags most frequently displayed by scam artists and poorly-managed warrantors.
1. Questionable documentation
Nobody likes reading contracts. They’re boring, they’re dry, and they’re usually long and confusing. But it’s necessary to suffer through them, or better yet, get an attorney to read through them on your behalf.
That’s because underhanded warranty providers are counting on you to sign documents you don’t read.
Good documentation will leave absolutely no questions about what it covers and how. More importantly, it establishes what the warranty doesn’t cover, such as clearly intentional damage. There should be no gray areas and no loopholes.
In short, the responsibilities of both the warranty holder and the company providing that warranty should be set in stone and understood by both parties.
One thing you should pay particularly close attention to is how your contract defines “pre-existing conditions.” Do not sign a contract where this is vague or poorly defined. Sleazy organizations will use this phrasing to get out of providing you coverage on just about anything you can think of.
2. Feeling pressured to sign
Worthwhile warranty providers don’t feel the need to browbeat prospective clients into submission. They’re comfortable letting customers figure things out for themselves, and do things on their own timeline. They know at the end of the day their reputation will speak for itself.
Walk away immediately should a representative attempt any of the following tactics:
- Refuses to show you documentation unless you pay. Asking to see a contract before you sign it or make any payments isn’t just reasonable, but sensible. If that request is met with a demand for an initial down payment, you likely aren’t talking to a warranty provider. You’re talking to a scammer.
- Limited time offers. Home warranties are a long-term investment, much like a mortgage. An agent that’s pressuring you to make a split-second decision on one either doesn’t know how to do their job or is trying to fleece you. Either way, they’re not worth your time.
- They contacted you. If you’re receiving any sort of cold contact from a third-party warranty provider, be wary. Scam companies such as Secure Home Warranty have been known to use misleading tactics to get consumers to purchase coverage.
Sample contracts from the top home warranty companies
3. Too many excessive fees
Most home warranties are highly customizable, with different levels of coverage. That much is to be expected. Where you should be a bit suspicious is when there seems to be a service fee for just about everything.
I already mentioned you should be wary of companies that try to charge you a premium just to view a contract. You should also look out for red flags such as cancellation fees, service fees, and so on.
4. Details that don’t add up
Does the company you’re evaluating have a list of quality contractors on-call for warranty claims? What are people saying about the organization online? Are there too many reviews that read like they were written by actual people or a complete dearth of feedback? How long has the company been in business, and what are its customer service hours like?
A good home warranty provider will likely have a list of reputable contractors they call in as necessary. They will offer 24/7 customer service, a fleshed-out website with complete contact information, and plenty of positive reviews online. If the firm you’re evaluating does not meet those qualifications, it might be best to look elsewhere.
Finally, be wary of a company that offers prices that seem too good to be true. Because they probably are.
5. Unreasonable demands
My last point has a lot in common with the first one, but it’s distinctive enough to merit its own entry. A warranty company should never have to request intimate personal or financial information up front. Details like your name and address are one thing, but until you’re actually signing on as a client, anything further should be cause for alarm.
You should also be wary of the following requirements:
- A home inspection (carried out by the organization’s own investigators, obviously). While you should probably have a home inspection done before signing up for a warranty, you should be allowed to choose which inspector you use.
- A contract that’s longer than one year. Most home warranty contracts are renewed on a yearly basis. Anything more is cause for suspicion.
- The ability to only call on a single approved contractor. Again, most warranty organizations will have a list of contractors, but you should also have some freedom in terms of your decision-making here.
What Is Covered by a Residential Service Contract?
Residential service contracts cover essential home systems and appliances. Here’s what’s typically covered under a provider’s most comprehensive plan:
- Kitchen refrigerator
- Clothes washer/dryer
- Built-in microwave
- Dishwasher
- Garbage disposal
- Ceiling fans
- Oven
- Stove
- Range
- Cooktop
- Central vacuum
- Air conditioning system
- Heating system
- Electrical system
- Plumbing system/stoppages
- Ductwork
- Water heater
In addition to covering major appliances and systems, many home warranty companies offer additional add-ons, which offer protection for less common household items, such as:
- Pool
- Spa
- Roof leaks
- Well pump
- Sump pump
- Septic tank
- Guest units
What Is Not Covered by a Residential Service Contract?
While a home warranty covers many items throughout your home, it doesn’t cover everything. Below are a few features that aren’t protected:
- Garage doors and door tracks
- Windows, walls and doors
- Sprinkler systems
- Window air conditioning units
Additionally, many companies won’t repair systems or appliances if they’re damaged from misuse or have a pre-existing condition. For a full list of what is and isn’t covered by your home warranty company, read your provider’s sample contract before signing up for a plan.
How Much Does a Residential Service Contract Cost?
The cost of a residential service contract can be broken down into two expenses: plan rates and service call fees. A plan rate is the annual cost of your plan, which is typically paid monthly. This cost usually runs between $25 and $60 per month, though it can decrease if you choose to pay in one yearly sum or select a higher service call fee with select companies.
Your plan’s service call fee is what you pay every time a contractor is dispatched to your home to repair or replace a damaged item. This cost typically ranges between $75 and $125 and can impact your plan rate. For example, if you select a higher service fee, your monthly premium will decrease and vice versa.
It’s also important to consider your plan’s maximum payouts, which are the dollar amounts your provider is willing to pay for a particular repair or replacement. For example, a residential service contract may cover up to $1,500 for repairs on your HVAC system per year. If a repair exceeds this amount, you’d be responsible for paying the remaining balance.
How To Find the Best Home Warranty Companies
Here are some tips for finding the best residential service contract for your home:
- Budget—While residential service contracts can prevent you from paying out-of-pocket expenses for repairs and replacements, it’s still important to budget for the monthly cost of a home warranty. To get the best price, request quotes from several providers.
- Read the fine print—All reputable home warranty providers will share sample contracts, which detail coverage limits, exclusions and claims processes. Before buying a residential service contract, review the entirety of the contract to prevent yourself from being blindsided by a lapse in coverage.
- Consider the protection you need—Take stock of the appliances and systems in your home. From there, determine which items you want to cover. Some providers offer plans that protect both systems and appliances, while others protect one or the other.
Our Top Home Warranty Recommendations
When it comes to a quality home warranty, American Home Shield and Select Home Warranty are the industry leaders. Take a deeper look at the coverage offered by each provider below.
American Home Shield
American Home Shield (AHS) is a leading provider within the home warranty industry, serving customers throughout the continental United States and Hawaii for more than 50 years. The company offers three plans and helps customers easily track their claims through its online status tracker. Additionally, AHS allows homeowners to use a pre-approved service technician that’s outside of their network.
Select Home Warranty
Select Home Warranty offers coverage to homeowners in 50 states. The provider has three affordable home warranty plans and offers new customers two months free when they purchase a 14-month plan.
Frequently Asked Questions
When should I purchase a residential service contract?
A residential service contract can be purchased at any time, though most plans don’t go into effect until 30 days after the initial purchase. Additionally, many plans can be transferred to a new homeowner or a new residence should you decide to move.
How do I file a claim with my home warranty provider?
The process for filing a home warranty claim is simple. Follow the steps below to file a claim with your home warranty provider:
- Contact your provider. Most home warranty companies allow you to submit claims 24 hours a day, seven days a week.
- Wait for a licensed technician within your provider’s network to contact you and schedule an appointment.
- The technician will come to your home to assess the problem, at which time you’ll owe the set service fee.
- If the damaged home appliance or system is covered by your warranty, the technician will schedule a time to make the repair or replacement. If the repair is simple enough, the technician may be able to make it during this initial appointment.
Is a home warranty worth it?
Even with regular maintenance, appliances and systems can fail unexpectedly. When these essential items malfunction, a home warranty covers the cost of repair or replacement, preventing you from paying expensive, out-of-pocket costs.
Home Warranty Rating Methodology
To help you find the best home warranty, our reviews team researched numerous home warranty companies, analyzing their coverage plans, pricing and customer service, among other factors:
- Coverage: Home warranty companies that provide extensive coverage and protect important systems and appliances, including your air conditioning, refrigerator and heating, scored higher than companies with minimal coverage.
- Plan variety: A provider with more coverage plans allows for more flexibility among customers. In general, most home warranty companies provide an appliances-only plan, systems-only plan and combination plan.
- Pricing: We scored providers based on their monthly plan prices and service call fees compared to the industry average pricing. Companies with more affordable coverage received more points than companies with more expensive plans.
- State availability: Where you live will determine what companies are available in your area. Home warranty companies that covered more states received more points than companies with a limited state availability.
- Trustworthiness: There are some home warranty companies that are scams and don’t follow through on their service agreements. We rated companies based on their years of experience, ratings on the Better Business Bureau (BBB) and customer reviews.
To keep our data current, our team regularly updates the data points for each company to ensure their coverage offerings, pricing and availability are accurate.
