Questions to Ask When Shopping for a Home Warranty

When you buy a pre-existing home, you want to make sure that your Realtor negotiates into the contract a residential service contract (RSC), also known as a home warranty.For home buyers, that means that don’t have to worry if something goes wrong. For the seller, that means that they don’t have to worry about surprises haunting them once they’ve moved on. For a nominal charge - usually about $60, the RSC company will repair or replace many of the common mechanical systems and appliances found a residence should they wear out due to normal use.

These systems typically include HVAC systems, plumbing, electrical, oven, range, cook tops, built-in microwaves, trash compactor, disposal, water heaters and garage door opens. You also can purchase optional packages to cover permits, the hauling away of old equipment and limited code upgrades, kitchen refrigerators  built in wine coolers, washers and dryers, pool/spa equipment and septic system, septic plumbing and well pumps. Some policies even offer coverage for termites and pest control.

RCSs typically won’t cover the roof, the foundation or anything structural. They also won’t cover routine maintenance.

But for systems that just wear out, RSCs are a life saver! Such contracts have personally saved me thousands of dollars in repairs through the years and eased a lot of raging headaches when diswashers and garbage disposals wear out.

The catch phrase is “normal wear and tear.” Cosmetic defects typically aren’t covered. Nor is damaged caused by pets or misuse.

While most RSCs cost roughly the same, they’re not all created equal. Different policies have different limitations and exclusions. When your Realtor hands you an armload of literature, it helps to know upfront what you’re looking for and the questions to ask. Here’s a few to get you started:

• Does the policy have an “obsolete parts clause”? An obsolete parts clause says that if the part to fix your system or appliance is no longer available, the RSC provider can just pay you for the cost of the part. The won’t pay to fix or replace your failed system or appliance.
• Does the policy cover appliances or systems that break due to previously poor maintenance? Will it cover problems not detected during the home inspection process? During your home inspection, you can catch some problems and your Realtor can negotiate to have them fixed prior to closing on the home. However, a home inspection typically doesn't include the same level of inspection that say an HVAC tech would do. If an HVAC system breaks down because the coils were cleaned as scheduled, then some policies won’t cover it.
• Does the policy cover problems that arise from incorrect installation? Recently we had a client who purchased a pre-existing home with an above ground spa. When the spa was installed, it required a new breaker box. The breaker box worked fine for the original owner, but failed within weeks of the new owner moving in. The RSC provider wouldn’t cover the repair because the new box was incorrectly installed in the first place.
• Does the policy cover pre-existing conditions? If so how does are pre-existing conditions determined? Most policies won’t cover “known” pre-existing conditions. They also may place limitations on unknown pre-existing. For example, many companies would cover rust and corrosion claims made within the first 30 days that policy is in effect.
• Does the RSC cover upgrade costs when a system has to be replaced? This is particularly important to ask if the home still has a SEER 10 system or one that uses Freon. New EPA mandates mean that SEER 10 systems and systems that use Freon are being phased out. When a SEER 10 system finally wears out, it will have to be replaced by the new standard. You’ll want to make sure that your RSC covers that hefty expense.
• How much is the additional coverage for optional coverage for pool/spas, septic systems and for homes over 5,000 square feet in size? This is important to know because if you don’t ask for enough from the seller to cover the cost, you could end up paying for the additional coverage yourself.
• How much is the second year of coverage? Again, this is important to know because you will be responsible for your own coverage after the first year.
• Is the RSC provider licensed by the Texas Real Estate Commission (TREC)? Since 1979, all RCS providers in Texas have to be licensed by TREC.
• Is the RSC provider a member of the National Home Service Contract Association? More than 90 percent of all RCSs written in Texas are done by association members/ Association members are required to adhere to standards of practice and offer the best recourse. In recent years, a lot of Internet-based RCS companies have popped up that are not licensed nor a member of the association. If they’re not, then you might not have any resource if they refuse to pay claims or disappear over night.

The best time to start shopping for a home warranty is when you start shopping for your new home. Ask your Realtor for information and recommendations early in the home shopping process. You’ll want give this important decision the attention it deserves. And not allow it to get lost among the hundreds of other decisions you’ll make in the purchase of your new home.