One tool a real estate investor will want to explore is a home warranty policy. In this post we will discuss the pros, cons and cautions of home warranty policies.
A home warranty is simply an insurance policy that covers the repair or replacement of various items and appliances in your home. Most policies cover AC & heating systems, plumbing, electrical systems, and appliances such as garbage disposals, ranges, microwaves, dishwashers and more. Many policies offer coverage for refrigerators, washers, dryers and a swimming pool/spa for an extra fee. The exact coverage varies from company to company as well as the exact product you purchase. Below are links to a few of the many companies you may explore in the Arizona market:
American Home Shield
Fidelity National
First American Home Buyers Protection
Old Republic
There are pros and cons for buying a home warranty policy. Below is an overview from our experience.
The Pros:
- For many, a home warranty buys ease and piece of mind. When a problem comes up you have a third party to call for diagnostics and repairs. Costly fixes such as an AC unit may be made for a small out of pocket expense.
- Many repairs are covered that may be beyond your capability.
- You call one number for just about everything. You don't have to keep a list of service providers.
- Many home sellers, including banks, will provide a policy for the first year of ownership as part of the contract. Don't be afraid to ask for one when you make your offer.
The Cons:
- The annual premium of a policy is generally in the $500.00 - $600.00 range.
- There is a trip charge for each item you call in for repair. Fees vary but are generally in the $60.00 range.
- Each repair requires a separate service call and fee. If your tenant tells you there is a plumbing leak and an electrical problem you are likely to be charged for each item.
- Home warranty companies are insurance companies and may try to reject your claim, especially if they find the problem was due to a lack of general maintenance.
- The home warranty company's service tech will generally try to repair rather than replace.
Cautions and Advice:
- Many people have trouble getting claims covered... a common issue with insurance providers. We recommend you find and keep the company's local representative name and number handy. They can often resolve problems and get claims covered.
- Make sure and have appliances such as AC systems and water heaters serviced on a regular basis. Keep copies of the service receipts handy so you can provide them if needed. Many claims are denied due to lack of maintenance.
- Read your service contract fully and know what is and isn't covered. Be tough and don't give in when your claim is denied. Notice, we said when, not if.
- If you are working with a Realtor, know that he or she may have a fair amount of pull with the warranty company. In our case, we have placed hundreds of policies on homes and the warranty companies want to keep our business. Call your real estate agent if you have a problem and ask for help.
- Look at AC coverage carefully. Some companies do not cover crane fees if your AC unit is roof mounted. Others charge for freon disposal or if they have to bring the unit up to Federal standards such as the required 13 seer rating. Your real estate agent can help you through this mine field as well.
After reading this you may think a home warranty is too difficult. Personally, we always put them on homes over 8 years old unless the AC unit and hot water heater have been recently replaced. Those big ticket items can be a killer. Plus, we know how to get claims accepted and like the convenience.
As always, feel free to drop us an email or call us at if you have questions. We truly like to be of service.
Ron Urban & Gene Urban
The Urban Team
602-234-5777
gene@urbantamaz.com
