There is no such thing as a free lunch. While home warranty companies are not free, they aren't always what they seem to be when looking at their brochures or online advertising. Many landlords look to these companies in order to offset their risk and maintenance costs but there are some things that need to be taken into consideration before deciding to put all your eggs into one basket. This is the second section of a four part article which discusses the pros and cons of home warranty companies.
Disadvantages of Having a Home Warranty
Air conditioning stopped working in the dead heat of the summer, don’t worry my home warranty company will fix it, right?
When signing up for a warranty policy, most companies have a brief outline of their coverage and a small section that requires the property owner to fill out. What many people do not realize is that in most cases, there is an additional terms of service agreement or a series of policies that they are also signing off on when accepting the policy. Much like insurance companies, these policies are filled with exclusions that limit their coverage.
For example, it is very common for home warranties to exclude coverage for improper installation, improper maintenance or manufacturer defects. While this seems reasonable at first glance, this is a very limiting clause because how do you define proper maintenance or installation? Many of the larger components in a home age over time and can last 10 to 20 years. During that time, changes in building code determine what is considered proper installation. So something install properly 20 years ago, may not be considered proper now which violates the terms of the policy and voids coverage.
In other cases, the warranty company may cover the repair, but the property owner is required to pay for the costs to bring the system up to current building code. To take advantage of the coverage, the owner is forced to use the vendor that was sent out and the vendors know it. Most warranty companies have pre-negotiated pricing with their vendors when it comes to traditional repairs but this does not extend to the landlord and often times they are forced to pay inflated repair costs to bring the unit up to code.
Let’s say for instance, a replaced water heater in your area costs $800 on average for a plumber to install. The home warranty sends out XYZ Plumbing who determines that a new water heater is needed to restore hot running water to the tenant but that it needs to be brought up to code. The non-covered charges could cost the property owner $500 to $600 if not more plus the $45 to $75 that was already paid for the warranty company to send the plumber out.
Other common denials are manufacturer defects which may not be discovered until after the manufacturer’s warranty has expired or improper maintenance. Did you know that you are supposed to change the air filters regularly and rinse off the AC system? When was the last time your tenant flushed the water heater? How about that wind last night, it blew the basketball into the pool pump and now its leaking. All of these are examples of things that void coverage.
Many landlords know how difficult it is to get a tenant to take care of simple tasks such as cleaning, replacing light bulbs or smoke detector batteries. Can you really trust them to maintain your appliances, water heaters, heating and cooling systems, etc.? When was the last time your tenant read the manufactures handbook on the dishwasher? Have you ever read the handbook?
There are many reasons to deny coverage and home warranty companies are taking advantage of this more and more especially on high priced items like high-end appliance, water heaters, heating and cooling systems, etc. Many property owners can have a warranty policies for years only to find out that the $4000 heating a cooling system is not covered because a rat chewed on a wire or pigeons where nesting the unit.
August 10, 2013