Most homeowners are searching for a reliable way to protect their largest asset — their home. As an experienced Realtor for the past 20 years, I understand the urgency and confusion behind choosing the right protection plan that is affordable and provides peace of mind.
A residential service contract, often interchangeably referred to as a home warranty, provides protection against unexpected expenses stemming from the malfunction of crucial home systems and appliances.
In this article, I’ll highlight the red flags you need to watch out for when on the hunt for that ideal residential service contract. Whether you’re wading through a sea of perplexing paperwork or navigating around aggressive sales pitches, I’ll equip you with the knowledge to choose your home warranty plan with confidence.
What Is a Residential Service Contract?
Also known as a home warranty or home service contract, a residential service contract is a policy that covers repair and replacement costs for home systems and major 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 different from a manufacturer’s warranty, which is specific to a particular home system or appliance and only covers repairs due to defective materials or faulty workmanship. Additionally, manufacturer 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, they have key differences. A residential service contract protects essential home systems and major appliances. 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 plan is typically a one-year term and is paid on a monthly basis. When a covered item, such as a water heater or air conditioning unit malfunctions due to normal wear and tear, you submit a claim with your provider. The home warranty provider 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
Your mortgage lender usually requires a homeowners insurance policy on your home. These policies cover catastrophic damage to your real estate. They don’t cover areas like normal 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 comprehensive home warranty. However, it’s crucial for homebuyers to be discerning about who they sign with.
I recommend purchasing a home warranty to protect your home systems and appliances. Your house is likely the largest purchase you’ll ever make. It’s vital to take steps to safeguard that real estate investment.
Regrettably, the home warranty industry has its fair share of scam artists. They are ready to take advantage of unsuspecting homebuyers. Here are common red flags exhibited by dishonest individuals and poorly operated home warranty providers.
1. Questionable Documentation
Nobody likes reading contracts. They’re boring, they’re dry, and they’re usually long and confusing. It is necessary to review the contracts you sign, or enlist an attorney to read through them on your behalf.
Underhanded home warranty providers are counting on you to sign home service contracts you don’t read.
A reputable home warranty contract will leave absolutely no questions about what it covers and how. More importantly, it establishes covered items, service call fees, and exclusions like intentional damage. There should be no gray areas in a contract, and no loopholes.
In short, the responsibilities of both the home warranty holder and the home warranty provider should be clearly understood by both parties.
One thing a homebuyer should pay particular close attention to is how your home service contract defines “pre-existing conditions.” Do not sign a home service contract where this is vague or poorly defined. Untrustworthy companies will exploit this wording to avoid covering breakdowns of home systems.
2. Feeling Pressured to Sign
The best home warranty companies don’t feel the need to browbeat prospective clients into submission. They’re comfortable letting customers review home warranty plans and home warranty contracts. Ultimately, they understand that 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 residential service contract before you sign it or make any payments is reasonable. If that request is met with a demand for an initial down payment, you likely are talking to a scammer instead of a home warranty provider.
- 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. Reputable home warranty companies do offer promotions on occasion but will not pressure you to sign up.
- 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 fees for different levels of coverage. You should be suspicious if there are excessive service fees for too many items.
You should be wary of companies that try to charge you to view a residential service contract. Look out for red flags such as cancellation fees and excessive service fees.
4. Details That Don’t Add Up
When considering a home warranty company, there are several factors to examine. First, check if the company maintains a roster of reputable contractors readily available for home warranty claims. Additionally, read online reviews to understand other homeowners experience. Pay attention to the authenticity of reviews; an abundance of overly positive or suspiciously vague ones may warrant skepticism. Check out how long the company has been in business and its customer service availability.
Finally, be wary of a company that offers prices that seem too good to be true as they probably are.
5. Unreasonable Demands
A reputable home warranty company should never demand sensitive personal or financial information upfront. While basic details like your name and address are reasonable, any requests for further information before you commit as a client should raise red flags.
You should also be wary of the following requirements:
- A home inspection (carried out by the home warranty company). While you likely will have a home inspection done before signing up for a home warranty, you should be allowed to choose which inspector you use.
- A contract that’s longer than one year. Most home service contracts are renewed on a yearly basis. Anything more is cause for suspicion.
- The ability to only call on a single approved contractor. Reputable home warranty companies generally provide a list of contractors for your convenience. However, it’s essential for you to have the freedom to make decisions regarding contractor selection.
What Is Covered by a Residential Service Contract?
Residential service contracts cover essential home systems and major 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 home systems, many home warranty companies offer additional add-on coverage for these less common items:
- 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 components 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 home systems or major appliances if they’re damaged from misuse or have a pre-existing condition. For a full list of items covered by your home warranty company, read your provider’s sample home service 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. On average, home warranties cost $50 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.
A 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 home warranty company 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 major appliances and home systems in your home. From there, determine which items you want to cover. Some providers offer plans that protect both home systems and major 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 all states except NV, WA, and WI. 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 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:
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- Contact your provider. Most home warranty companies allow you to submit claims 24 hours a day, seven days a week.
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- Wait for a licensed technician within your provider’s network to contact you to schedule an appointment.
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- The technician will come to your home to assess the problem, at which time you’ll owe the service fee.
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- If your warranty covers the damaged home appliance or system, 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?
Yes. 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 home systems and major appliances, including your air conditioning, refrigerator and heating, scored higher than companies with minimal coverage.
- Plan variety: A provider with more coverage plans allows customers more flexibility. In general, most home warranty companies provide an appliances-only plan, systems-only plan, and combination plan.
- Pricing: Providers were scored 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 scammers and don’t follow through on their service agreements. Highly rated companies have 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 make sure their coverage offerings, pricing, and availability are accurate.
