Home warranties are often misunderstood, making them a source of various lawsuits brought by homeowners. For this reason, home warranties are becoming the focus of a great number of regulatory efforts aimed at safeguarding consumers. This article provides comprehensive insights into the fundamentals of home warranty regulations, and how to protect yourself and your valuable home appliances from any surprises down the line.
The basics of home warranty regulation
Home warranties were first introduced to U.S. homeowners in the 1970s. The real estate market was booming and people sought to protect their pricey home appliance purchases. American Home Shield emerged as the first home warranty provider in the budding marketplace, and thus an industry was born. The next bridge that needed to be crossed was finding a way to oversee these home warranty companies.
Home warranties are regulated on a federal and state level, meaning the federal government typically sets the standard and states then decide how to enforce home warranty regulations within their jurisdiction. There’s no standardized home warranty contract, so enforcement varies from state to state. If a home warranty provider decides an appliance has not been maintained properly, it may not be covered under the service contract. Read the fine print to know what terms and exclusions apply.
Home warranty regulation vs. insurance company regulation
Although home warranties share some of the basic principles as homeowners insurance in the sense of paying a monthly premium for coverage, the difference is that unlike insurance companies, federal law does not regulate home warranty providers.
Insurance companies are regulated by the National Association of Insurance Commissioners, the Federal Insurance Office at the Department of Treasury, and the Financial Stability Oversight Council. Home warranties don’t go through the same vetting process as insurance companies. Because of this, some home warranty providers may be riskier to deal with than insurance companies.
Who regulates home warranty companies?
Regulations for home warranty companies vary state by state and are overseen by different sectors. In some states, there’s no regulation or oversight of home warranty plans. For example, the Florida Office of Insurance Regulation handles home warranties in Florida. In Texas, the Texas Real Estate Commission is in charge of home warranties. New York handles these service contracts under the Department of Financial Services, but Georgia has laws that govern home service contracts. Most frequently, the Commissioner of Insurance oversees home warranties.
The National Home Service Contract Association is a nonprofit organization that offers self-regulation for home warranty providers. The organization provides a code of ethics for home warranty providers to follow and guides their business practices. Home warranty companies registered with this organization typically have an easier system for resolving homeowner complaints. Homeowners should ask their provider if they are a member of the National Home Service Contract Association.
What to look for in a home warranty contract
Although home warranties are a great way to protect some of your expensive home appliances, many homeowners end up reporting the home warranty provider to the Better Business Bureau (BBB) when they don’t receive the payout they expect. Here are 10 things homeowners can do to protect themselves from getting scammed.
1. Check if you already have protection
New home appliances and other home appliances that may not be new could still be under warranty if you purchased them with a credit card. Credit cards can help extend warranties beyond the manufacturer’s warranty.
2. Opt for a local provider over a larger national company when you can
You’ll likely receive more affordable coverage that’s better suited to your needs with a local home warranty company. Check the Better Business Bureau (BBB) to get some insight on the home warranty company’s customer satisfaction and reviews from current and past customers.
3. Find out how much the warranty will cost
Extended warranty costs vary by state, provider, and the type of home warranty plan you choose. It’s a good idea for homeowners to research what the financial commitment will be for their desired home warranty contract and home warranty coverage.
For example, a home warranty plan in Westchester, New York, might cost $900 for home appliances and $1,020 to add electrical and plumbing, along with add-on expenses (like when the contractor comes to perform the work), which could cost an additional $60 to $125. On the other hand, a plan in Central Ohio might cost $600 for appliances and $600 to include electrical and plumbing.
4. Know the extent of what your warranty covers
Carefully read and understand the terms, conditions, and exclusions of your desired home warranty plan. The service contract details can be very specific and the legal language could be tricky to understand if you don’t read the home warranty contract closely.
For example, home appliances like refrigerators may be covered under your home warranty plan but not their ice makers. Some circumstances, like ovens breaking during the self-cleaning mode, could prevent you from getting the payout you may expect. Additionally, if you didn’t perform what is classified as routine maintenance by the home warranty provider, you may not be covered. Read the fine print of your home warranty contract to understand coverage limits.
5. Determine if your plan will repair or replace a broken item
Most home warranty companies will cover the repair or replacement of malfunctioning major home systems and appliances. If a repair is too expensive, the home warranty provider will offer to replace the item but may reimburse you at a lower value, leaving you to make up for the difference to get the same home appliance model you previously had.
6. See if there are limits to how much the plan will pay out
There are typically limits on how much homeowners can be reimbursed by a home warranty company. The ultimate amount will vary depending on your home warranty provider and plan. Some home warranty plans will pay up to $2,000 a year to assess, diagnose, repair, or replace each item that has home warranty coverage.
7. Look into the quality of the provider’s customer service
It’s easy to forget about customer service when everything is working as it should. When you need to get in touch with someone at the home warranty company about filing a claim on a covered appliance, you’ll want to make sure the process is as seamless as possible and that someone at your home warranty provider can help quickly.
You may not realize how important your refrigerator or hvac system is until it breaks, and when it does, you’ll want to get it fixed as quickly as possible. Learning how long it will take for a technician to come out on a service call to repair the item is paramount. Ask what that maximum service call turnaround time may be, even in the busy season.
9. Find out when the plan goes into effect
Learning when the plan officially starts after signing on the dotted line will help you know when coverage begins and you can start making claims. In general, there’s a 30–60 day waiting period after opting into a home warranty contract.
10. Investigate the home warranty provider’s online services
Find out if you’re easily able to navigate the home warranty company’s website and if someone is available 24/7 in case of emergency. If there’s a way to fill out a claim online as opposed to over the phone, it may save you from having to stay on hold for an extended amount of time.
How to file a complaint about home warranty companies
If you have an issue with a home warranty company, homeowners can file a consumer complaint with the BBB. You should file your claim as specified in the plan details and save any conversations you’ve had or notes you’ve taken while working with the company.
If there’s been an issue with the coverage or work was completed incorrectly, check to see if your home warranty provider allows for mediation and arbitration. You may have to pay a fee to have access to those services and could end up in court.
You can also speak to the state attorney general or state insurance agency to try and settle the dispute with insurance commissioners. Your real estate agent may have some leverage if he or she has a good working relationship with the home warranty provider.
If your claim has been denied, set a reasonable deadline for appropriate action to be completed by the service provider. If the time passes with no resolution, you should repair or replace the item as if you did not have a home warranty and sue for reimbursement, if needed.
If you’ve decided to file a lawsuit, you can either go to your local magistrate court and file there where you’d be able to represent yourself, or you can hire a warranty lawyer and gather the letter from the insurance company. If no attorney seems to be willing to take your case, it may be a sign that you don’t have a case.
Are home warranties worth it?
Despite some complaints around home warranties, a home warranty can help you save substantially on expensive home repairs and give you peace of mind that you won’t be stuck footing a costly repair bill. If you’re buying or own an older home with aging major appliances, a home warranty can be a great option to help with homeowner cash flow should something break.
With over 20 years of experience assisting homeowners in property purchases, I wholeheartedly recommend home warranties to all my clients.
Click here for the best home warranties on the market.
Frequently Asked Questions
What’s the difference between a home warranty and home insurance?
Provided by an insurance company, home insurance covers home damage due to a fire, natural disaster, storm, or theft, whereas a home warranty covers the appliances and systems inside your home from normal wear and tear. Purchasing both would cover your appliances, systems, and home from damage, depending on what is covered in the contract.
How long does a home warranty last?
Home warranty contracts typically last for a year, depending on your provider and plan, and they’re renewable from year to year.
How does a home warranty work?
Home warranties work by selecting your annual coverage plan and taking out a home warranty contract with a home warranty provider. As long as it’s covered in your plan, when a home appliance or system breaks down, you can call your home warranty provider to have a technician or contractor come out to your home to assess and diagnose the item that’s malfunctioning or broken.
You’ll pay a service fee for the visit, as detailed in the contract. Following their analysis, the home warranty company will have the technician repair the item or they will pay you to replace it, depending on the details of your contract.
Who pays for a home warranty?
If you’re buying a home, speak to your real estate agent about coordinating with the seller to determine who would pay for the home warranty at closing. Depending on the local customs, the seller often pays for it because it benefits the seller for the sale. It’s a great way to entice buyers and show good faith that everything is in working order.
Additionally, it gives sellers peace of mind from having to worry about getting potential complaints from the buyer about appliances or systems breaking down after the sale. If sellers already have a policy, it can usually be transferred to a new owner.
Is there typically a waiting period for home warranty coverage?
Most warranties come with a 30-day waiting period before coverage begins.
Home warranties typically exclude pre-existing issues, so the waiting period allows the warranty company to confirm that a system or appliance failure is genuinely covered. .
Looking for more information on home warranty companies? Check out some of our other expert reviews to get all the details you need. Remember, each of these companies gives a free quote.
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