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What to Look For: Home Service Contracts Sales and Marketing

When it comes to home service contracts, not all are equal.

Some home service contract companies make it seem like the consumer will never have to pay for any repairs or replacements again, and this is when it's important to know what's covered and what's not.

Other common marketing tactics include advertising to consumers in states the company doesn't actually provide coverage in, or detailed contracts with limiting clauses on the number or amount of claims a homeowner can file in a given period of time.

In home service contracts, it's important for consumers to know what they're being sold and what they're actually getting.

Home Service Contract Confusion

One of the biggest confusions in the home warranty industry is the terminology being used in regular marketing efforts. The biggest one of all being the term home warranty itself.

The first thing consumers should know is what they're buying, and the advertising and literature selling home warranties does not always make that clear.

For simplicity, home service contract advertisements typically use the term home warranty, when in actuality the warranty they're selling is a home service contract.

In a recent CompareHomeWarrantyQuotes.com article that compared home insurance to home warranties we said this, the term home warranty has simply become a convenient label that consumers and people in the industry use. But, a "home warranty" is in fact a contract, not a warranty.

A home warranty is the legal contract that warranties labor and materials when a new house is being sold to the first homebuyer. A home warranty, or the builder's warranty, is a guarantee that the home being sold is to-standard and can be expected to stand, hold and function properly for a given period of time. This warranty traditionally covers everything from the foundation to the roof, but does not include the appliances later installed, things like the refrigerator, washer, dryer, dishwasher or AC unit. This is why it's good to have a home service contract in place – so these big ticketed items inside the home are also protected, or under "warranty."

The Biggest Differences are in the Details

The biggest differences in home service contracts are oftentimes the loopholes not being advertised. This is where it's important to read through the contract in its entirety, because this can be the difference in the contract being worth the money being spent.

A few common home service contract loopholes that consumers won't see called out in advertisements:

Pre-Existing Conditions

Pre-existing conditions are issues deemed to have existed prior to the purchase of the home service contract by the issuing home service contract company. The language tends to be vague but indicates something was already wrong or close to being wrong, due to neglect, poor installation or other factors resulting in the malfunction of the product. Some home service contract companies use pre-existing condition clauses as a way to deny any and all claims by their customers. Be aware.

Maximum Amounts

Some home service contracts:

  • Pay a maximum amount per contract period
  • Pay a set maximum amount per each customer
  • Have different allowed maximums for different items covered under the contract

Excluded Products and Parts

Certain products, or parts of products, are excluded from coverage. While a product might be covered in general, some contracts detail specific parts or sets of parts they do not cover in the product.

Cheaper Isn't Always Better

People buy home service contracts to save money, but the cheapest contracts are not always the best.

The best home service contract companies work with a variety of technicians, granting their customers access to licensed, bonded, pre-screened professionals. Rather than a homeowner individually calling service companies, reading reviews from their consumers, and getting estimates, with a home service contract, the homeowner has instant access to a network of technicians. And when it comes to repairs and service, cheaper is not always the better option. Some home service contracts might have higher rates because their network includes a higher caliber of technicians, which cuts back on follow-up service calls, poor repairs or incorrect instillations but results in higher pricing.

The Best Source of Information: Customer Reviews

In addition to doing thorough independent research and reading through all of the contract details, another good source of information when it comes to home warranty companies is customer reviews. Here, you can see what other consumers' dealings with the company have been, what the end result was and what their advice would be to future customers.

The best part about customer reviews are they are unedited – they're raw interpretations from fellow consumers.

But, not all reviews are real. Companies know potential customers are reviewing this information, so some pay for their reviews.

To identify a false customer review, look out for:

  • Repeat reviews left by different people but that say the same thing.
  • If the language of the review reads like an advertisement, it probably is.
  • 5-star ratings that have no comments or story to go with the review.
  • Another important factor to consider when reading customer reviews is that people are more apt to leave a negative review than they are to leave a positive one.

When reading about a specific customer's experience, ask yourself:

  • Is this a one-off situation or an abnormality?
  • Does it seem founded on fact or emotion?
  • Was there an attempt by the company to remedy the situation? – A lot of companies have started responding to customer reviews online, to either offer free or extended trial periods of their product or service or to offer their condolences and explain the other side of the customer's complaint.

In addition to customer reviews, it's also a good idea to check to see if the company has received any industry awards or recognitions. Although these aren't everything – some awards and lists are fee-based and companies can pay to be included or accredited – they can be a good indicator of positive consumer experiences.