Its hard to overlook reducing your expenses in order to maximize your return. Investors are always contentious of their spending. Being a landlord is challenging and managing repair costs places a huge burden on property owners which is why home warranty companies are so appealing. This is the third section of a four part article which discusses the pros and cons of home warranty companies.
Disadvantages of Having a Home Warranty Continued
My policy states that the vendor has to call my tenant in 24 to 48 hours so they will complete the repairs quickly to keep my tenant happy…
Local laws can vary but in most cases, home warranty companies are governed mainly by their owner polices outlined in the service agreement that is often not shown to the property owner when purchasing the warranty. One thing that is often not stated in the agreement is how long the warranty company has until they have to complete a repair. While many states have specific laws that landlords have to follow giving only a certain amount of time to complete a repair. Guess what? The home warranty company does not have the same restrictions that you do.
A good example is lets say your state requires you to restore heat within 48 hours after the tenant reports a problem to you. The technician calls your tenant 24 hours after the warranty company was notified, but it’s in the middle of winter and they can’t go out for another 2 days. Then when the technician finally makes it out to the property, they determine that a part is needed.
Simple right? Buy the part and install it. But before buying the part, the vendor has to call the home warranty company first for approval if its over a certain dollar amount and this often times can’t take place until the technician gets back to their office. Typically, they don’t get authorization until the next day. They finally diagnosed the problem and ordered the part only to find out its on back-order for another 3 days. It took a total of 7 days to complete a repair when you as the landlord have only 48 hours and therefore breached state law which now requires you to compensate the tenant in some form. It may be monetary compensation or having to put the tenant up in a hotel for several days which can easily cost more than the amount you receive in rent that month.
How about their pre-screened vendors, they go through a rigorous screening process and the must be qualified to work on my property?
Warranty companies exist for one reason; to make money. Like any other business, they have to monitor their expenses very closely in order to remain competitive while generating positive income. Their main service is to send out service technicians to complete repairs to their clients’ homes and investments. This is their biggest expense and therefore they are going to proactively work to cut that expense down as much as possible. So what happens if you are constantly looking to keep your expenses low when looking for a service technician? You guessed it. You’ll end up with technicians or companies who hire technicians who are often entry level or not really qualified to work on your property.
Not only can your tenant experience delays in service, but there can also be an increased amount of call backs due to misdiagnosis or because the technical was not through enough to catch everything the first time around.
One final thought is that warranty companies are structured like call centers with multiple tiers. You have a property manager? That’s great because they can talk the warranty company and use their leverage to help get coverage or file a dispute over a problem that has happened. Well, not exactly. Most warranty companies will only talk to property managers regarding certain things and they can chose not to work with the property manager at any time, causing the landlord to call in. Now you have to go over your complaint with the first level, ask for a supervisor, then ask for their supervisor, and then the manager. Guess what, the manager is on the phone or away for lunch so they have to call you back… When you finally speak to the manager they will discuss what their policy covers.
With all these drawbacks, is it really worth purchasing a home warranty policy?
The next section of this four part series will discuss when a home warranty is worth the investment and when it isn't.
August 19, 2013