When performing home inspections, I frequently inspect homes that are advertised as having a home warranty, or I hear the buyers talking about purchasing a home warranty. I've heard mixed reviews about the home warranties, and recently read a post at an online home inspector forum from another home inspector asking how a warranty company could charge such a low fee for the service that is supposedly provided. I decided to do a little research on my own.
A home warranty is somewhat of a service contract, which will typically cover the heating system(s), cooling system(s), electrical, plumbing, water heater(s), kitchen appliances, and possibly other items depending on the contract, which may even include the roof and foundation. The sales pitch for these contracts is that if an item in the home fails, such as the furnace (on a cold, cold day), you won't be burdened with unexpected expenses, and the warranty will cover the repairs. A typically warranty costs about $500, but prices vary depending on the options selected.
The warranty company has a list of service providers they will use to perform the repairs, but only up to a certain dollar amount. For instance, one popular warranty program will cover up to $1,500.00 towards a heating system repair. While this would obviously cover the cost of the warranty program, this would only put a dent in the cost to replace a boiler. There is also a deductible that the owner must pay each time, regardless of the cost of the repair.
One of the most important limitations to be aware of is that pre-existing conditions are not covered, lack of maintenance is not covered, and items that have not been properly installed are also not covered. As a home inspector, I know there are a ridiculous amount of items that are not properly installed. Just in the past month, I've seen three power-vented water heaters that were newly installed with permits and inspected by the city, but were nevertheless improperly installed. I personally believe that most people don't obtain, read, and follow installation instructions - they just do enough to make it work. I've even been guilty of this myself... a long time ago ;).
So how can a $500.00 warranty cover all of these expensive repairs? Many of the service claims get denied due to pre-existing conditions, improper installations, or improper maintenance. The warranty companies will ask their service providers questions for information that could be used to deny a service claim, and will frequently find one. If the warranties didn't exclude so many things, the price of the warranty would have to be much higher.
Why is a home inspector writing about home warranties? Because it's my job to identify defects with installations and identify items that are not in proper working order when I conduct my inspections, and it's important to know about these things ahead of time. Purchasing a warranty to cover repairs to defective household items may sound silly, but I've heard of people doing this many, many times. Home warranties have their worth, especially for items that have been properly maintained but are at the end of their serviceable life, but I would strongly recommend reading all the fine print before purchasing a warranty. For reviews of different home warranty companies, check out www.homewarrantyreviews.com
Reuben Saltzman, Structure Tech Home Inspections