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Q: I’m buying an older home, and my real estate agent has suggested that a home warranty might be a good choice to help cover the inevitable maintenance issues that older home systems and appliances have. But I’ve heard that some warranties are full of loopholes and that claims are often inexplicably denied. Are all home warranties scams? Or is there a way to tell which ones are legitimate?
A: A home warranty is a great option for owners of older (and newer) homes. While homeowners insurance will typically cover damage to a home caused by accidents, weather, and specified perils, it does not cover maintenance or repairs to appliances or home systems due to expected wear and tear. A home warranty, on the other hand, covers whole-home systems such as HVAC, electrical, and plumbing, along with major laundry and kitchen appliances and other systems and appliances based on the policy. For owners of older homes, this can be reassuring; in exchange for an annual fee and a preset service charge fee, a home warranty company will dispatch qualified technicians to repair burst pipes, shorted-out electrical boxes, failed air condensers, and washers that won’t spin. Based on the terms of the warranty, each claim will carry a service charge, which is also declared in the policy documents. The technician will correct the problem; some home warranty solutions include repair of the problem or, if necessary, replacement of part or all of the system or appliance for no additional fee, up to the limit of the policy. This means that homeowners can call for repairs confidently without worrying that the bill will spike into the thousands, making it easier to budget for repairs. In addition, this confidence means homeowners can call for repairs when problems are still small: A little water on the floor in front of the washer may not seem like it’s worth calling in a repair person at the risk of spending hundreds of dollars, so those without warranty coverage might just wipe up the drip and push off the repair. But a small amount of water can very suddenly turn into a cascade, causing more damage to the home and resulting in a much larger repair and cleanup bill. A good home warranty is a cost-effective service contract that lets homeowners call for repairs at the first sign of a problem without fear of towering costs. The warranty won’t cover the cost of cleanup from the burst pipe or water heater—that’s a job for homeowners insurance. Together, home warranties and homeowners insurance can create a protective circle around the costs of equipment failure and damage to a home.
As with any insurance or warranty policy, however, home warranties have limits, and it’s important to note those limits before signing the contract. First, a home warranty is a policy of inclusion; the only systems and appliances that are covered are those specifically listed in the policy. If it’s not on the document, it’s not covered, so never make assumptions that something is “probably” covered. Second, the policy will have a monetary payout limit per claim, per appliance or system, and/or per year, so make sure it’s clear what the maximum is. Most often, homeowners who are dissatisfied with their home warranty coverage misunderstood either what was covered or what the limits to the coverage were. It’s also possible that they didn’t notice the terms and conditions on their policy. Warranty coverage is contingent on the idea that the home has been generally well maintained, so if the failure is a result of a furnace filter that hasn’t been changed in 10 years, there’s a good chance the claim will be denied.
Most warranty companies are legitimately trying to sell homeowners a good product that helps them feel protected; to reputable home warranty companies, scams are a scourge that make the whole industry look bad. The worst home warranty companies may use dishonest marketing tactics, and because there are scammers and criminals out there, it’s a good idea to do some research before signing up for a policy.
Common signs of a home warranty scam include unclear terms, a difficult claims or cancellation process, and poor customer reviews.
When a homeowner requests a quote for a home warranty, the company should send the basic policy documents outlining the policies and procedures for filing a claim, terms that may cause a claim to be rejected, a time frame in which a homeowner who has filed a claim can expect services, and some background information on the company’s process for vetting its technicians and contractors. If this information isn’t available in the quote documents, it should be readily available on the company’s website or from a customer service agent, and it should be available in writing before the policy documents are signed. Policy documents from a trustworthy company should be clearly written, well organized for easy reference, and detailed. Clear instructions for claims, appeals, and cancellation should be laid out. If the documents are obscure, confusing, or hidden in minuscule print under a blanket of legalese, it may be that the terms are intentionally obscure. Warranty shoppers should exercise caution if this is the case, even if a customer service agent can provide clarity, because if the terms of the policy aren’t clear in writing in the documents it will be difficult to enforce them. Similarly, if the process to file a claim seems particularly onerous, it will be difficult or impossible to use the policy and is more likely to be a scam.
Online customer reviews are tricky. On one hand, people are more likely to take to the internet to complain than they are to praise, so a collection of iffy or lukewarm reviews aren’t necessarily a red flag. One or two specific and negative reviews could be anomalies. But a pattern of specific and negative reviews, especially if they all highlight similar problems—such as repeatedly refused claims that seem valid, difficulty in getting a response from the company, or problems canceling a policy—then it’s time to pay attention and dig a little deeper. Seek out Better Business Bureau reports on the company or contact the state attorney general’s office to ask about problems that have been reported.
A home warranty company that employs aggressive marketing techniques in order to gain business is a red flag.
Most people have experienced it at one time or another: You fill out information online to get a quote or estimate, receive the quote via email, and then are subject to a barrage of daily phone calls and emails “reminding” you that you’re just a few clicks away from your new car, new insurance policy, or new siding. Telling the salesperson you’re not interested has no effect. This can happen with home warranty scams as well. Sure, sometimes the salesperson is working on commission and is just enthusiastic, but this kind of intense hounding isn’t good customer service. At best, it’s an indicator that the company may not be an ideal partner, but at worst it suggests that the company feels the need to trick customers into signing something quickly before they read the fine print. If this occurs, it’s best to walk away and consider a different company.
A call or letter offering you a home warranty or asking you to renew your warranty is a common type of scam.
Another tactic scam artists use is a phone call or phony letter threatening to cancel your coverage if you don’t renew your policy by sending payment immediately. This type of scam tends to target the elderly or other vulnerable populations, who may be less likely to question whether they have a policy to renew, perhaps assuming they do have a policy and have simply forgotten. These criminals are happy to prey on anyone they can get on the phone or through the mail. The time-sensitive nature of the renewal deadline can catch anyone who’s busy and not focused off guard, causing them to send off a check or credit card information (sometimes along with a lot of other information, such as addresses, bank routing numbers, and social security numbers). A reputable company will never demand that customers immediately wire or transfer money or send a money order. In addition, new home warranty scams are often aimed at recent home buyers; the scammers check the real estate listings for newly purchased homes, then call the new owners to suggest that the warranty held by the previous owner is expiring. It’s easy to fall for this kind of trick, but a scrupulous home warranty company won’t employ these methods. Yet another method disreputable people will use is the home warranty Direct Final Notice—a formal letter, sometimes on pink letterhead, that suggests that the home warranty has been seized by the homeowner’s mortgage lender and that coverage will end immediately if payment is not received. Tying in the mortgage lender (which is not difficult information to find) lends an air of credibility to this variation of the scam and is often successful.
Actual renewal notices arrive from a company you recognize, having done business with them previously, and will include detailed information about the policy and a reasonable payment date in the future. This will provide an opportunity for the recipient to look up the company’s website, find a legitimate phone number to call, and ask for information verifying that an account exists to renew.
To avoid falling for a home warranty scam, it’s important to do your research and read the contract carefully before signing.
Before selecting a home warranty company, homeowners should read online reviews and check with the Better Business Bureau and Consumer Reports home warranty reviews. Talk with neighbors and friends to ask about their experiences with the company. Real estate agents, who frequently work with home warranty companies during the sales process, can also be great resources. Compare rates and types of coverage—it’s a good idea to look closely at each company’s list of add-on coverage for items and systems not necessarily covered by the base policy, such as spas, septic systems, and well pumps, to make sure the policy is customized for the specific needs of the home. Once a company is selected, the homeowner will sign a contract for coverage and make a payment.
The contract for a home warranty policy should include all the details of the policy: the premium, the period of the contract (usually a year), the home systems and appliances that are covered, the service charge fee, and the policy maximums. In addition, it should include the conditions under which a claim may be rejected, a clear explanation of the appeals process should this happen, and information about how to cancel the policy and what premium refund you might expect. The contract should also clarify whether the policyholder can select their own contractors or if those are chosen by the company. These items should appear in clear language and be easy to understand. Before signing, the homeowner should ask questions until they are certain they understand what they’re signing, and if there’s anything that is unclear in the printed document that is explained in person, they should ask to have the document reprinted to reflect that clarification. The homeowner should keep a copy of the signed policy and the canceled check or credit card statement that reflects their payment.
If you’re the victim of a home warranty scam, you can report the company to a law enforcement agency or the Better Business Bureau.
Sometimes people fall for scams. If they weren’t profitable, the scammers wouldn’t bother, so if this has happened, go easy on yourself and recognize that you’ve joined a very large club. If the payment for the sham warranty was made with a credit card, there’s a possibility that you may have coverage for a fraudulent charge, and some banks will refund the payment if the account holder files a fraud report. Wired money, bank checks, and money orders are likely lost. There may not be recourse to reclaim the payment, but that doesn’t mean that scam victims have no voice. The Better Business Bureau’s home warranty division, the local police, and the state attorney general will likely be interested in taking reports about the scam. The Better Business Bureau may investigate the scam and will register the scam report on their web page and in their files so that in the future, potential customers who call to research the company will know that the company should be avoided. The attorney general’s office watches for patterns in commerce so that it can take action against repeat offenders and warn the public of fraudulent activity. Local law enforcement may do the same: They can take a report of the fraud and publicize it to warn other members of the community that a scam is afoot. This is especially helpful with phone calls or letters, which may target many homes in a particular area at the same time. The Better Business Bureau usually reaches out to accused companies for comment or to invite fraudulent home warranty resolutions, which may help if the company is a legitimate business that made a mistake or made some bad decisions. Often, though, scammers aren’t part of a legitimate company, in which case raising awareness in the community may be the most a scam victim can do—but other would-be victims will appreciate the warning.
A reputable home warranty company will offer transparency, flexible plans, an easy claims process, and overall positive reviews.
How can homeowners recognize a legitimate warranty company? A reputable home warranty company will focus instead on clarity, transparency, and details. Red flags to watch out for from companies that should be avoided involve obfuscation intended to cover up the absence of specifics they can’t provide. Clearly listed terms, packages, costs, and details about how to use the policy are a great sign. Checking online reviews should reveal mostly positive reviews—don’t look for perfection, because even great businesses have unhappy customers sometimes, but the best companies take those unhappy customers and try to make things right, which careful research will reveal at the Better Business Bureau and online review sites that permit the company to respond to reviews.
While there are some disreputable companies offering home warranties, the best home warranties can offer additional peace of mind to homeowners.
Any useful home service will have dishonorable people trying to take advantage of homeowners who aren’t totally familiar with their product. A home warranty from a reputable company, though, can help a homeowner feel secure in the knowledge that they can call for a repair when they need one without worrying about skyrocketing costs they’re not prepared for. It can also help homeowners rest assured that if their well-maintained furnace dies on a cold night, they won’t have to rack up huge credit card bills or spend a month wearing extra sweaters while they save for a replacement. When researching the best home warranty companies, there are several companies that come up again and again as companies whose customers stay with them year after year. American Home Shield and AFC Home Club provide some of the widest ranges of coverage available, with multiple tiers of service to meet customers’ budgets and great flexibility and guarantees. Choice Home Warranty is noted for its outstanding customer service, while Liberty Home Guard boasts one of the longest lists of add-on services in the market—great for homeowners with appliances that don’t usually make the base plan list. Cinch Home Services is known for covering appliances and home systems with pre-existing problems, and there’s no waiting period for coverage to begin. For homeowners on a tight budget, AFC Home Club guarantees its premium rate in 5-year increments, making it easy to know how much will be due at renewal, and American Residential Warranty offers some of the best coverage at low rates. While there are many excellent companies providing home warranties, these are among the best in terms of customer satisfaction and reliability, and they are a great place to begin looking for coverage that will let homeowners rest more easily.
