In theory, a home warranty always sounds like a good idea, right? By default, you’re backing up a big investment with a guarantee that it’ll last a certain amount of time or perform at a specified level without breaking, damaging, or being deemed unusable.
A lot of homeowners ask our team at Bay Management Group if they should purchase home warranties for their houses; unfortunately, many people don’t realize how a home warranty actually works.
In this article, we’ll explore the positives and negatives of buying a home warranty plan, as well as the things you should know before you decide to sign on the dotted line.
What is a Home Warranty Plan?
By definition, a home warranty plan is a one-year service agreement that covers any repair or replacement to major home appliances and components that break down over time. Most plans cover a home’s biggest ticket items. Elements such as plumbing, electrical, HVAC, and the water heater are typically addressed in home warranties. Since these are broad terms, you have to dig deeper to ensure your home and equipment are optimally protected.
The typical home service warranty plan will only cover minor plumbing and electrical issues. You might be able to have a faulty light switch swapped out, or maybe a bad garbage disposal can be replaced. On the other hand, deeper electrical and plumbing problems likely do not fall under your home warranty, leaving you to foot the bill anyway.
People are often caught by the misunderstanding that all plumbing and electrical issues will be covered by a warranty, but that’s usually not true. By always reading the fine print and asking a few simple questions when you’re deciding which plan to purchase, you can eliminate headaches down the road.
Questions to Ask When it Comes to Home Warranty
Here’s a list of some basic questions you should keep in your back pocket to ensure you fully understand how a home warranty plan works as it pertains to your unique property:
1. What Types of Plans are Offered?
- Systems-Only Plans. These plans cover the electrical, plumbing, and HVAC system (heating and cooling) in your home or rental unit.
- Appliance-Only. These home warranties take care of major appliances, such as refrigerators, stoves, dishwashers, washers, and dryers.
- Combo Warranties. Combo warranties are more all-encompassing. They’ll cover some, if not all, of your appliances and systems. These warranties typically include electrical, plumbing, and HVAC systems, as well as your major appliances.
2. What Happens When a Claim is Filed?
The warranty company almost always has a set network of vendors who work in your area. Usually, service providers will answer 24 hours a day, meaning you’ll be able to get ahold of someone to answer the call but the repairs may not happen that day or night is A big problem is that often times you’re at the mercy of the vendor that’s assigned to perform your maintenance request. You won’t have many options (if any) in terms of choosing the person or company that performs your property’s maintenance.
If you have a leak or no heat in the winter, odds are high that you’ll have to wait a few days before anyone will be able to make it out. This means you’ll be dealing with unhappy tenants until the situation is fixed.
3. What Are the Standard Costs Associated with Home Warranties?
Every plan is different, and the costs can vary widely depending on the area and the plan you choose. Premium plans typically range from $240 to $650 a year. You can expect to pay about $75 to $125 for a deductible if you have to make a claim. Much of the time, the deductible needs to be paid upon the vendor’s entrance into the home.
4. Do I Need to Pay More Than Just the Deductible?
This depends on the repair. If it’s a basic repair that can be handled with a simple service call, you’re most likely just going to pay the deductible. You might also have to pay for parts if something needs to be replaced. If the repair is fairly major, you should plan for out-of-pocket expenses that go beyond the deductible. Be sure to speak with your vendor or contractor before the work is started so you can understand how various problems can increase the costs associated with the problem at hand. Knowing issues up front will ease any monetary discomfort after the work is complete.
5. What if the Entire Electrical System in the House is Faulty?
Unfortunately, most plans don’t cover catastrophic issues, which is what whole-house faulty wiring would be considered. If your entire home has faulty wiring or knob-and-tube wiring that could possibly cause a fire, you might want to reach out to your realtor if you’ve recently purchased your home. There may be remedies you can realize if the previous seller didn’t disclose important information that’s related to a fire hazard. Alternatively, your insurance company might be able to suggest options that will help you make the most of your situation.
In any event, a typical home warranty won’t cover faulty electrical systems. It will be up to you to ensure your rental property is up to livable standards and safe enough for your renters to live without worry.
6. What if the Piping to and from the House is Damaged?
Most warranty companies will not cover plumbing repairs that aren’t directly within the walls of the home. Sometimes tree roots will grow into the pipes beneath properties and while they’re unpleasant, they’re usually left to the homeowners to deal with. Deterioration over many years of use is another problem that’s typically left to property owners to handle on their own.
7. When Can I Start My Plan? Is There a Grace Period?
Typically, you can expect to wait 30 days after the service starts to put a claim in.
What Does Bay Management Group Recommend?
At BMG Philadelphia, we suggest three options for landlords who want to ensure their properties are well-protected:
Obtain a Warranty Plan IF:
- Your water heater is over 14 years old (most water heaters have a lifespan of approximately 12 years).
- The furnace is over 15 years old (most start having minor issues after 10 years).
Obtain a Service-Only Plan for Your HVAC System
- These plans typically exist in local markets (as opposed to policies with nationwide companies).
- You’ll usually be covered for bi-annual services prior to the changing of seasons, which can help extend the longevity of your equipment with standard preventative maintenance.
Obtain a Warranty or Service Plan if the Owner of the Property is Comfortable Doing So
At BMG, we work with any and all warranty companies—big and small. As a landlord, it’s important to choose a property management firm that understands why warranties are put into effect in the first place. We will always contact the warranty company for any and all repairs to confirm the repairs and issues are within the scope of the agreement.
At Bay Management Group, we understand how important investors’ properties are to their bottom lines. That’s why we do everything we can to help them find tenants who will respect their spaces and stay as long as possible. If you’re ready to turn your rental into a money-making endeavor, we’re ready to talk to you!