More and more single family homes are being marketed with a home warranty policy. This is the seller’s way of trying to convince the buyer that if something breaks during the first year of ownership, the warranty policy will cover the expense and the buyer will be 100% satisfied. But, in our personal experience, home warranties are more of a nightmare than a benefit to investors and landlords.
What do Home Warranties Include?
A basic home warranty policy will cover home appliances, heating, cooling, plumbing and electrical systems. Premium policies will add roofs, wells, pools, lighting fixtures and sprinkler systems. A one-year home warranty policy will range from $300 to $800 per year. After paying a small deductible, the repairs or replacement is free. Sounds good, right? Wait until you read the fine print.
Home Warranty Exclusions, Exceptions and Denials
Home warranty policies are full of exclusions and exceptions and it is in this area that they leave the door wide open to deny your claim. Repairs are often denied based on the following conditions which they reserve the right to determine:
- Lack of Maintenance
- Improper Maintenance
- Improper Installation
- Pre-Existing Problems
While the policy may cover “plumbing” for example, they will usually not cover the parts that fail most often including shower heads and diverters, faucets or anything between the foundation and the street. If your pipes freeze, that’s not covered either.
The home warranty company also controls the decision of whether to repair or replace. If they do decide to replace, say the furnace, many policies will only pay up to $1,000 toward a replacement leaving the owner to foot the additional $2,000 to $5,000.
Home Warranties and Tenant Satisfaction
Tenants expect the unit they live in to stay well maintained. If a tenant decides to renew their lease, it is usually based on how well the owner responds to their maintenance calls. When a tenant calls in a repair, they expect it to be taken care of as quickly as possible.
Here lies the problem when using a home warranty company to handle the repair. They will want a second opinion on all pricey repairs. Second opinions take days. Try telling your tenant they will not have heat for 7 days while the home warranty company decides who to send out. Due to the egregious requests, we always have to give tenants rent credits usually equal to the daily rent cost, which almost completely offsets savings on the repair.
We as your property manager do not have control over who does the work. The home warranty people decide that. They frequently opt for new contractors or the cheapest one. You can easily see how the quality of work will suffer. Tenant satisfaction will be low. Overall frustration will be high.
To take it over the top, most companies require that the deductible be paid to the technician when they arrive. Try asking a tenant to foot that bill. Do not be surprised if they move out as soon as the lease is over.
During one summer we once we had a house go two months with no AC. We had to move the tenants out of the house while the “repairs” were being made. The owner still paid 50% of the cost out-of-pocket. He lost a massive amount of money and had little recourse. Their legal department is very skilled at limiting their liability.
Home warranty policies are one of the biggest landlord rip-offs that we have ever seen. We hate losing control of who is doing the work on your investment. We hate losing control over how long it takes to get the work done. We hate having to spend your money paying out rent credits because the home warranty people can’t get their act together.
We would rather create 100% owner and tenant satisfaction by using our preventative maintenance schedule, our 24-hour maintenance call center and our tried and true maintenance team. All of this is already part of your property management contract, so why pay for anything else?
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