Home warranty

In the UK, the term home warranty refers to the warranty and insurance provided with new build homes by the likes of NHBC and GHW. Usually lasting for 10 years, the new home warranty and insurance protects the first or subsequent purchasers of the new build home against damage caused by structural defects that might arise as a consequence of poor workmanship during the build process.

NHBC has about 80% market share in the UK of the new homes warranty market. Only builders registered with NHBC can offer their warranty product and NHBC checks the build quality of new homes offered with their warranty at key stages during the construction process.

In the USA, home warranty is a contractual agreement provided to an owner of a house by any of a number of different types of entities such as home builders, risk management groups, or others. The home warranty industry was founded in 1971 by American Home Shield.^[1] In the strictest legal sense a warranty of any kind within the United States must adhere to guidelines set at the states' and federal government's levels. However, the words "home warranty" are not always used explicitly to mean a legal warranty is being conveyed. In many cases, at least in the United States, a home warranty is not a warranty at all, but rather a home service contract that covers the repair and/or replacement costs of home appliances, major systems such as heating and cooling, and possibly other components of a home, structural or otherwise. The home service contract generally covers home systems such as the home’s plumbing or electrical, and appliances like dishwashers that fail from old age/normal wear and tear. Coverage varies significantly across home warranty companies. Home warranty contracts do not cover all home repairs.

Coverage

Basic home warranty coverage includes the main systems of the home and certain appliances. Most companies cover plumbing, electrical, heating systems, as well as refrigerators, dishwashers, and ovens. Some charge additional coverage for appliances such as clothes washers and clothes dryers. A home warranty company will pay for the cost to repair or replace the system or appliance, as long as it has broken down from normal wear and tear. If the system or appliance failed because it wasn’t maintained (the water heater was not flushed or the fridge’s evaporative coils were not cleaned), most home warranty contracts will not cover the cost to repair or replace it. Home warranties exist to repair or replace old worn out systems that have been properly cared for by the homeowner. Buyers should read the home warranty contract carefully to understand coverages, limitations, and exclusions.

Limitations

Many home warranty companies have limitations within their contracts. These limits stipulate how much money the company will pay to repair or replace a system. Other non-monetary limits may specify how many units are covered or the size of the unit.

Some home warranty companies have an overall limit set, where anything in the contract is covered up to a certain amount of money. Once the company has paid that amount of money they will no longer pay for the repairs and replacements of home. Other home warranty companies have limits on certain items in the home. In these contracts, if there isn’t a limit stated on an item, the item has no limit and the home warranty will pay as much as needed to repair or replace the system or appliance. Homeowners should read through a home warranty contract to know what limits are set on their coverage.

Exclusions

What parts of a home are excluded from coverage vary from company to company. Generally, home warranties exclude coverage on systems and appliances that have been misused, intentionally damaged, or not maintained. Some home warranty companies don’t cover non-mechanical parts of system or appliance, like the handles or knobs on an oven, for example. Another common thing for home warranties to exclude coverage on are known conditions.

Known Conditions

Most home warranty contracts will state that repairs and replacements will not be covered if the problem was known prior to the date of coverage. This is sometimes referred to as a known condition. Most often, homeowners run into this problem when purchasing a home. After getting a home inspection, some real estate agents will mistakenly tell the buyer that any problems found in the home inspection will be covered with a home warranty. Instead, if the home inspection notates that something needs to be repaired or replaced before the date of closing, most home warranties won’t repair or replace it.

State Rules and Regulations Regarding Home Warranties

In some states, such as New Jersey^[2] for example, builders of new homes are required to provide a home warranty to those purchasing homes. Though the terminology is identical, these home warranty plans differ from the ones offered to existing home owners or through real estate transactions involving the purchase of existing homes. The coverage may be very different from other similarly named agreements.

Home warranty is one of several terms for a contract between home owners and companies that cover some of the costs associated with specific repairs and replacements of household objects. Related industries often use such terms as residential service contract and appliance warranty plan. Just as is the case with home warranty in states such as Florida,^[3] residential service contracts are regulated in some states such as Texas.^[4] It is of value for consumers to understand their state's regulations for companies that offer to provide maintenance or repair services and/or coverage for related costs since some companies may be operating without proper licensing. Consumers may sometimes avoid falling prey to unlicensed companies by consulting their state's policies and other information regarding home warranty and similar services. In some cases current lists of licensed companies are available for consumers to check on the applicable state government agencies' websites.

Using a Home Warranty

When a system or appliance breaks, a homeowner should call the home warranty company. It is vital for a homeowner to call the company first, as some home warranties will not reimburse homeowners for money spent on repairs or replacements outside of the contract.

After determining if the system or appliance is covered by the contract, the company will send out a contractor from a local business. The homeowner will pay a pre-determined service call fee to the contractor, who will diagnose the problem with the failed system or appliance. The contractor will get approval from the home warranty company to make the repair, depending on if the diagnosis reveals that the failure was caused by something the contract covers. If the contractor receives approval from the home warranty company, they will complete the repair. As long as the repair or replacement doesn’t cost more than a limit stated in the contract, the home warranty will pay the contractor for the rest of the bill.

Problems with Business Model

Some homeowners may find that they repairs or replacements take a bit longer for their homes. Since home warranties order and buy parts at lower than retail price, there can be a delay on getting the necessary parts to make a repair or replacement.

Contractors

The local contractors that home warranty companies send to make the diagnosis and repairs aren’t technically employees of the home warranty company. Contractors are paid by the company, but they are usually a separate business that partners with the company to take service calls for their customers.^[5]

Cost of a Home Warranty

Premiums

In the United States, annual premiums generally range from $300 to $600 USD.

Service Call Fee

There is an additional service trade fee (deductible) of 50 to 100 dollars per service incident. For some companies this is a flat rate fee for any and all repairs. Other companies have different fees depending on what part of the home is being serviced. This service call fee is paid directly to the contractor for diagnosis of the failed system or appliance, regardless of if the repair or replacement will be covered by the home warranty company.

Most companies do not let homeowners combine two repairs with one service trade fee. For example, if your electrical switch needs a repair and kitchen sink is clogged, you will have to pay the service trade fee twice.

Controversy

Some common complaints that home warranty clients have:

Warranty companies deny the claim citing homeowner's maintenance negligence
Warranty companies deny the claim because of a "pre-existing problem"
Warranty companies always repair the appliance even when it is in such bad shape as to be replaced

Home warranty companies deny systematic denial and claim that customers need to pay close attention to the contract. Warranty contracts specify that pre-existing conditions and problems arising due to lack of proper care and maintenance are not covered.

It is not too uncommon to find companies that open the business for a short period of time and then vanish. Around 20 companies went out of business between 2013 and 2014.^[6]

Buyers are encouraged to check the provider ratings of the companies selling the product.

References

↑ "Homeowners Warranty - About Us - American Home Shield". Retrieved October 19, 2014.
↑ "NJ Department of Community Affairs". Retrieved October 19, 2014.
↑ Specialty Product Administration. Retrieved October 19, 2014.
↑ The Residential Service Company Program. Retrieved October 19, 2014.
↑ "Independent Contractor (Self-Employed) or Employee?". www.irs.gov. Retrieved 2016-02-11.
↑ "Home Warranty Companies that have gone out of Business". April 8, 2014. Retrieved October 19, 2014.

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