What a Home Warranty – Also Known as a Home Service Contract – Is and What It Isn’t
Though commonly referred to as home warranties, those contracts sold to homeowners to cover the repair or replacement of common household systems and appliances are rightfully called home service contracts.
Labeling a home service contract as a home warranty for marketing purposes isn’t against the rules but it can be confusing for consumers. The liberal use of the word warranty can also be confusing for homeowners who have a contract already but who are not sure whether it’s a home warranty in the strictest sense or a home service contract. If you are like many homeowners, you may not know the difference between a true home warranty and a home service contract. Here are the most essential differences.
Warranty is a legal term. Though there are few legal limits in the use of the word “warranty,” it is subject to some state and federal laws and regulations. Like all legal terminology, the word warranty is intended to be used in a careful and deliberate manner. For example, a carpenter can sign a contract with a homeowner in which a warranty is given for the quality of work performed. The warranty can include limits on what sorts of flaws are covered and how far into the future the work is guaranteed. Many service contracts that are referred to as warranties don’t stand up to the legal tests of the word in a technical or legal sense.
Home service contracts are never mandatory. While some states require contractors to provide a warranty on their work in order to protect home buyers from the pitfalls of poor workmanship or defective materials, home service contracts are never a requirement. Home service contracts cover products or materials that the company providing the service contract had no part in manufacturing or constructing. And, in the end, what the consumer pays for is substantially different than a true home warranty contract, which is normally associated with a home builder’s contract. Home service contracts serve a very different purpose.
A home warranty covers workmanship and materials. Once it ends, it cannot be renewed. While home service contracts cover things like dishwashers, stoves, refrigerators, washers and dryers, and other home systems and appliances a homeowner owned prior to purchasing the contract, home warranties, in the truest use of ter, only cover the workmanship and materials that go into the construction of a house. Whenever a home warranty on a newly built home is mandatory by way of state regulations on home builders, that warranty typically covers very specific materials and implied work quality. Home warranties on newly built homes don’t come with options to renew because they are not sold as a service but rather as a protection for builders against the liability costs if a home proves structurally unsound or to have other problems.
Home service contracts often come with deductibles. A home service contract typically passes part of the cost of a service call onto the homeowner. Service call fees, or the deductible a homeowner pays, are similar to an insurance deductible in the sense that they are an out-of-pocket expense before the company providing the contract covers the remaining costs. A service call fee may be between $50 and $100, sometimes less, sometimes more. Because a home service contract isn’t really a warranty in the legal sense it does not guarantee that a product is free from defect. Oftentimes, a home service contract does not guarantee that service calls will result in an approved claim. What a service call fee does cover is the cost of a contractor to visit the home to determine if the broken-down system or appliance is covered by the home service contract.
Home service contracts are their own type of warranty. They are not a form of insurance, nor are they a home warranty in the truest sense of the term. They are, however, a homeowner’s number one defense against costly repairs or replacements of popular home systems and appliances.
Is That Covered? Common and Uncommon Household Items That Are Covered (And What’s Not): Do You Need a Foundation Warranty in Addition to a Home Warranty?
If you are shopping for a home service contract (a home warranty) and you are seeking coverage for your house’s foundation, be sure to read all the fine print. Not all home service contracts cover foundational or structural elements of the home. Before buying a home, it’s important to understand the true cost of homeownership – because foundation problems are real and can be quite expensive.
Was that big, long crack in my foundation there before or is that new? Questions like that one will almost certainly keep you up at night. But, paying for a foundation repair will probably cost you a lot more sleep than the problem itself. The truth is, many homeowners, despite their assumption that foundation problems would either be covered by their homeowner’s insurance or their home warranty, are without any coverage if natural settling or defective materials and/or workmanship should lead to foundation problems.
Scanning the coverage details within your homeowner’s insurance policy or your home warranty contract will likely reveal conclusively whether or not defects in your home’s foundation would be your responsibility to pay to repair. Once you know for sure you may be faced with a decision. Do you buy a separate foundation warranty, should one be available to you? Do you take your chances based on what you know about the ground your home was built on and perhaps the reputation of the builder that constructed your house? Taking on new monthly or periodic costs can be tough for most American households. How do you justify adding an extra expense that you’ve never had before after all? Here are some things to consider.
- Is the writing on the wall? Have you already noticed signs that your foundation is not settling properly? Cracks in sheet rock, doors that won’t open properly or are difficult to lock, raised flooring tiles with cracked grout surrounding them, and many other symptoms could already be right in front of you. Without professional inspection these signs can often be misinterpreted or overlooked. One common misconception among homeowners is that a symptom of a foundation not settling properly, if it goes away, was probably not related to the foundation at all. This is often not the case. In fact, in dry summers, dramatic settling of a foundation may be followed by an ease in that sinking once sufficient water is absorbed into the soil beneath the foundation. This can result in things like jammed doors suddenly swinging freely again only days after the problem is noticed.
- Can a foundation warranty be purchased for your house at this point? If you already have a problem with your foundation then you may not be able to get a foundation warranty. You may first be required to fix the problem and provide documentation to the foundation warranty company you are seeking to contract with. It pays to have your home’s foundation inspected prior to paying anything to a foundation warranty company. In some cases, the foundation warranty company may provide you with a free inspection prior to agreeing to write a foundation warranty contract on your house’s foundation. This is ideal if the company’s inspection is thorough and you believe it to be trustworthy. But a free inspection is not necessarily the best option if the alternative is not having the foundation inspected at all. A foundation warranty that limits repair costs in situations when a pre-existing problem was not detected prior to the warranty being written can possibly cost you more than a good inspection would have.
- Would it be better to talk with a foundation repair contractor first? Warranties often dictate the terms of repairs including who can perform the work and how much the job can cost in total. Sometimes this is not in the best interest of a homeowner, particularly if there are known problems with the foundation or ones that can reasonably be expected to occur. One advantage that comes with shouldering the costs of an expensive repair on your own is that you can choose who does the work and how extensive the work will be. In most cases you should receive a warranty on the work and that warranty might be more valuable than one you could buy from a foundation warranty company. A warranty from a contractor may cover all of the costs of future repairs within a set period of time.
Most foundation and structural issues are not covered by a standard home service contract. And ultimately, there are many things to consider before choosing a separate foundation warranty. It pays to understand the typical cost in your area of varying degrees of foundation repair prior to making a decision about a foundation warranty. And most important, choosing to have a foundation inspection by a reputable company or individual can save you a lot of uncertainty.
Is That Covered? Common and Uncommon Household Items That Are Covered (And What’s Not): Septic Coverage
Septic tank repair can be costly even if your home service contract (or home warranty) covers some of the burden. This level of coverage definitely weighs in when homeowners consider whether a home service contract is worth it or not, because when it comes to septic repairs it can really come in handy.
If you have a home warranty or home service contract that covers your septic system, you should consider yourself lucky – because it’s not overly common. Repairs to aging septic systems can be very costly and the home warranty or home service contract coverage can help in some cases. But don’t let that sort of coverage distract you from the problems which may not be included in your contract.
The list below hits some of the high points. Homeowners with septic systems covered by a home warranty or home service contract should consult their contracts for specific coverage limitations.
Field not dispersing water into the soil. Over worked septic systems sometimes fail to disperse the water properly. The field is a system of pipes that extend out away from the tank and help by releasing water back into the soil around a house. But at times, the field may not be able to keep up with the amount of water trying to flow out from the tank. This may be due to damage or neglect but it can also be due to soil being saturated. Saturation may occur after heavy rain, something a homeowner has no control over. But these types of problems may not be covered by a home warranty or home service contract.
Clogged filter making it difficult for liquids and solids to flow through the system. Septic systems may sometimes have flow problems due to clogged filters. A filter can easily be inspected during maintenance of the septic system. If your home warranty or home service contract has a waiver of coverage when maintenance has not been kept up, then it’s very important to ensure the system is inspected regularly. Flushing commercially available septic products does not always correct problems, particularly clogged filters. Homeowners with clogged septic filters may experience a breakdown of their septic system and void the coverage that would otherwise have been available through a home warranty or home service contract.
Physical damage to the septic system. The root systems from trees, digging by utility or construction crews, soil movement, rust, and other problems can compromise the structural integrity of a septic system. With so much going on underground the chance of a tank or other septic component being damaged over the years is very real. For homeowners who do not have their septic systems inspected regularly these risks may not be understood until it’s too late and a big problem arises. If your home warranty or home service contract does not cover structural problems such as the ones mentioned above, then it pays to spend some money every year or two in order to have the septic system professionally inspected. It also pays to know precisely where all the components of your septic system are located.
Not all home service contracts cover septic systems. If you have a home service contract that doesn’t cover this expensive system, then you may want to ask the company you call for service to tell you about any options they offer their customers for a service contract. In some ways it can be smart to carry a separate service contract for your septic system. Just like your healthcare provider knows your personal medical history, your septic tank maintenance contractor will be familiar with the exact location, depth, and state of repair of all the parts of your system. If you go with your home service contract provider for septic coverage you may not have the same septic contractor come to your home twice. There are some components of your home that you just don’t want to take chances with, and your septic is one of them.
Is That Covered? Common and Uncommon Household Items That Are Covered (And What’s Not): Don’t Be Discouraged by Home Service Contracts that Won’t Cover Solar Power Equipment
In a world where homeowners have a choice when it comes to the source of their electricity, including regulated and deregulated energy markets and solar power, more and more are turning to natural alternatives.
But homeowners with solar power or seeking solar power for their homes may find it challenging to purchase a home warranty or home service contract with coverage for the solar components.
If you have been considering a change to your home’s dependency on public utilities for electricity, then you may have already noticed that it’s not that easy to find a home service contract or home warranty to cover the new equipment.
Purchasing home solar equipment and then paying to keep it in proper working order are both prohibitive expenses for many homeowners today. Despite the advantages of solar power, the costs can often outweigh all of the benefits. If your home warranty company or home service contract company doesn’t cover the potential cost of maintenance, repairs, or replacement costs when it comes to solar power, you may have more than just the upfront costs to consider.
But what if your home’s solar power equipment were provided with only the cost of the power you use each month? And on top of that, what if the maintenance were part of the agreement between you and the solar power company installing the equipment? Sounds too good to be true right? But it may already be an option for you. In fact, some companies, such as Sunrun, already offer solar power on a fixed monthly cost-basis with little to no upfront costs.
Going green and other reduction efforts in energy consumption in the home are big right now. If you want to learn more about Power Purchase Agreement (PPA) or Solar Lease options for homes in your area, try contacting your local electric utility company or search for options specific to your state. And, if you’re considering a home warranty, consider an energy audit first.
Home Warranty Basics: New Construction vs. Existing Homes
New Home Warranty
New home warranty companies provide builders with expressed written, third party insured (some may not be insured) warranties which the builders may place on the new homes they build. This type of warranty is a benefit to both the builder and the homeowner because it gives definition to what the warranty covers, performance standards to measure against and make determinations when something is defective, and spells out how disputes will be handled. This helps eliminate confusion as to what is covered.
If the warranty is “insured” or guaranteed by the warranty company this gives the homeowner the benefit of a third party outside of the builders office who is responsible for enforcing warranty coverage. Most of the “insured” warranty programs also take over the structural liability portion of the warranty from the builder so they get some relief from a possible structural defect or repair costing them money down the road. Structural repairs can and often do run into the tens of thousands of dollars and a builder who uses an insured warranty is providing their homeowners with some added protection. The homeowner does not have to rely solely on the builder’s financial condition to ensure covered repairs are made.
HUD-backed mortgages when used to purchase a new home have in the past required that an expressed written third party insured and HUD approved warranty be offered on the home. This helped protect HUD from homeowners defaulting on their mortgage due to a home being defective. Defaults had previously occurred due to a builder being unable or unwilling to make a repair, thus leaving the homeowner no choice but to walk away from the home and the mortgage.
The terms HUD required were 1-year coverage on workmanship and materials and 2-year coverage on systems – including wiring, piping and duct work, also known as the stuff behind the sheet rock or inside the walls. And then HUD also required the builder to provide new home buyers with a 10-year coverage period for structural or load bearing portions of the house. A builder could forgo providing this type of warranty provided they have certain inspections performed on the home during construction. Most opted to just purchase the warranty because that did not disrupt their construction schedule. In recent years, less than ten, this changed to where the HUD requirement can be met if the local building departments provide certain inspections throughout the construction process and then issue a certificate of occupancy.
Existing Home Warranties
Existing home warranties are often referred to as resale warranties or residential service contracts, and this type of product is technically a service contract because they have nothing to do with the warranty, or obligation, of the “manufacturer” of a new item. What they do is provide for service expenses to be paid for by a third party on the various items defined in the warranty or service contract. This is different from a new home warranty in that it has nothing to do with the state statute imposed on a new home builder. This product is solely an agreement between the service provider or insurance company backing the contract and the homeowner. They usually cover things like the appliances, sometimes including the HVAC systems as well as the piping and electrical wiring in the home. Of course, a thorough reading of the contract is needed to make sure you understand exactly what is covered because each is a bit different.
Many of these products are sold in one-year increments, although some offer longer terms.
The New Jersey Requirement
Some states have specific requirements for builders to provide a written home warranty contract to their home buyers. [New Jersey](https://comparehomewarrantyquotes.com/new jersey) is one example, and they require a builder to register with them before they begin building homes and agree to either meet the guidelines the state has laid out for the builder’s warranty or to provide a third-party product. The states that require this save builders and homeowners a lot of headaches by laying out, in writing, all of the expectations a home buyer should have of their builder’s finished product.
California also has unique laws when it comes to home service contracts and the companies that provide them. Check the laws in your state to know the home warranty basics when it comes to building or buying a new home.
Buying a Home Service Contract at the Closing
Many home service contracts are sold to home sellers and home buyers right at the closing table.
If you’re one of those sellers or buyers purchasing a home service contract at the closing table, there are a few things to consider. Keep these in mind and discuss them with your real estate agent or with the seller if no agents are involved in the sale of the house.
Cover the cost of the home service contract. One of the most important aspects of a closing is the amount of money each party must bring to the table in order to finalize the purchase of the house. Every moving cost, whether increasing or decreasing in the days leading up to the closing, makes that respective closing cost a tricky amount to predict. If either or both of the parties involved in the real estate transaction are shooting for a specific closing cost, things can get complicated in the last few days leading up to the closing. Don’t be surprised if the home service contract you originally agreed to accept as a concession from the seller proves to be too expensive to fit into the closing due to other costs being greater than expected. It pays to be ready to quickly choose a less expensive home service contract if that kind of change in plans occurs.
Compare the home service contract to the inspection report. Home service contracts oftentimes exclude liability to pay for repairs required due to lack of proper maintenance. Some home service contracts even exclude some otherwise covered items based on age or defects that existed prior to the start date of the coverage period in the contract. It’s always a good idea to take the inspection report and compare it to the coverage details found in the home service contract and do so well in advance of the closing date. If you spot a lot of exclusions that will affect your house due to age or condition then you may want to choose a cheaper home service contract that will provide you with the same level of coverage for the items that you know are in good condition or meet the age requirements while excluding the other items which would not be covered due to some problem or age factor.
Look at the period of the home service contract. Not everything is better in bulk amounts. You may not really want to be locked in with a home service contract for five years but if you don’t check the period of the contract prior to closing that’s exactly what you might get. Long-term home service contracts sometimes present a great value as far as the annual cost is concerned but that is only the case if you get good results from the company backing the contract. Considering the big commitment in that kind of contract and the fact that some contracts do not allow a refund or early cancellation you would be wise to look closely at the company prior to accepting such a long-term contract.
Annual Cost Limitations on Home Service Contracts
When you purchase a home service contract, it pays to look closely at the contract itself. One particular thing to watch for are limits on how much the home warranty company is obligated to pay for repairs or replacements in a given period of time. Some contracts have annual caps on costs for specific items and some even have total annual cost caps that apply to all things covered by the home service contract. There might also be caps based on costs accumulated over the lifetime of the contract rather than just annual ones. Despite all of the possible varieties of cost limitations one thing seems constant: Cost limitations on home service contracts are a bad thing. Or are they?
The “if it sounds too good to be true” factor. Home service contract companies charge their customers an annual contract fee in exchange for a guarantee of service when covered items require repairs or to be replaced. Somewhere in the balance between revenue and costs of repairs lies the balance where profitable business occurs. But can that kind of balance be reached if a home service contract offers limitless repairs to its customers? Every appliance and nearly every part of a home will run into problems at some point. To assume that a company can charge a customer less than $1,000 per year and then assume 100% responsibility for the costs of repairing all or most of the home’s most expensive appliances and systems might seem unwise. Read the fine print. If it’s too good to be true, it likely is. Consider looking at the stipulations of repairs or replacements and compare home warranty quotes to see if you’re paying more for certain contract terms than what is industry standard.
Should I shop for a home service contract with limits? For a homeowner seeking a long-term relationship with a home service contract company, stability of the company itself may be as important as the kind of coverage offered. Part of the return on investment for a home service contract customer is the protection from sudden, unexpected repair costs that can pop up any day, any year. In that sense, it may matter if a home service contract company is setting itself up for failure – after all, home service contract companies go out of business all the time. Shopping for a home service contract with limits on the annual or lifetime costs may not sound like a good deal for the homeowner at first but it’s better than investing money in years of coverage only to have the home service contract company go out of business. Consider checking home warranty reviews and look for companies that have been in business for a long time. It’s also a good idea to compare home warranty companies to make sure you’re going with the right one for you and your family, and for where you live. Cheaper is not always better when it comes to home service contracts, and some contract limits may be worth it in the long run.
How much is enough? When shopping for a home service contract you may want to find out the typical replacement cost of the items that will be covered. If the limits in the home service contract don’t come close to covering those types of replacement costs, then you may want to keep shopping around. Keep in mind that you may not be looking for a contract that covers every penny of what it will cost to repair or replace an item. What you may really be looking for is a stable company that has a reputation for keeping its promises, even if those promises involve limitations. Here’s everything you need to know about gathering home warranty quotes.
Home Warranty Service Calls to Avoid
There’s no need to avoid using your home warranty or home service contract but sometimes a repair can be accomplished more cheaply than the cost of your service call fee or deductible.
Having a home service contract offers homeowners peace of mind when it comes to repairing or replacing expensive home appliances and systems. But not all household appliance problems necessarily require calling for a service visit even when you have a home warranty. In some cases, a homeowner may spend more by requesting a service visit than if the repair were accomplished without the help of a repair contractor. Not all repairs fit this description of course but ones that are relatively simple quite often cost less to finish on your own than the service call fee required by the home warranty company.
A top-loading washing machine which has stopped running may be a good example of this type of do-it-yourself repair opportunity. One common cause of a washing machine failing to cycle once it is turned on is a faulty lid switch. If you look under the lid of a top loading washing machine you may notice a visible switch mechanism that is activated by a button attached to the lid, once the lid is closed. This type of switch on top-loading washing machines is very common and one of the first parts to wear out on some machines. Replacing this part may often be as simple as opening the casing of the machine and detaching the old switch, then replacing it with a new switch. Ordering this kind of part is simple, and you can view repair tutorial videos on sites like YouTube.
Do-it-yourself repairs often make sense, particularly for homeowners who have older appliances. The one thing to be sure of is that repairs you attempt yourself won’t affect any warranty coverage, either the home service contract or the manufacturer’s warranty. Keep in mind that video tutorials are often created by professionals with a lot of experience and training. These videos can be extremely helpful for first time do-it-yourself repairs, but they may also omit some safety advice that is critical to be aware of. A good rule of thumb is to make 100% sure that any appliance you attempt to repair is completely cut off from electricity. If a video tutorial leaves you with some questions try calling the consumer hotline provided by the manufacturer, or call the network for pre-screened, certified service contractors available through your home service contract.
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