Real Estate Industry

Home Warranties: Do They Provide Any Added-Value?

Home Warranties

Home warranties are a very heated topic among industry professionals and consumers alike for years now. Some bloggers and consumers claim this is an utter scam, while at the same time there are a lot of advocates to the service claiming it has helped them avoid hefty repair costs. We hope to shed some light on this heated debate using the vast amount of data we have collated for, an informational guide on the subject.

When we approach to review a home warranty provider, we look at the coverage offered as one of the most critical factors that will help us determine the whether the service carries any value at all for the consumer.

It is not unusual to find companies whose coverage and T&C make it difficult to get any return on the customer’s monthly premium. These companies use one of two tactics. Tactic A: they either exclude the most common faults from the coverage, meaning that in most use-cases the customer would not be able to reclaim any money for the fault if it was to occur. Tactic B:These companies set up a really low repair/replacement limit on the most expensive items. A low repair/replacement limit means that the company would only contribute a small amount of the actual repair or replacement cost if the appliance or system stops working. For example, replacing ductwork for an entire home would cost more than $2,000 on average, but some companies cap a ductwork repair at $500. Another example would be the fact that some companies exclude transmitter malfunctions from their ceiling fan coverage, and by doing that, they eliminate the most common ceiling fan fault off their policy.

On the other hand, there are companies out there in the market offering reasonable coverage limits with very straightforward terms and conditions that only exclude faults caused by improper usage or unfavorable maintenance. Companies like American Home Shield offering a $3,000 on items like refrigerator and Select Home Warranty offers up to $2,000 on air conditioning repairs. While the actual repair or replacement of the item may eventually cost more than that, the amount they are offering is definitely going to cover a substantial part of it.

The second factor that we look into in order to determine the value of a home warranty policy is the cost. Home warranty companies offer different plans for different use-cases, and each of them has different coverage and a different price, which also varies depending on the customer’s state of residence. The grand average of a home warranty plan, measured across 274 plans offered by 34 is $616 per annum. The grand average in the state of Washington is the cheapest, on average, with $500 a year, while in Alaska the same plans would cost $700 per year on average. The most expensive plan we have seen to date, which fits a large fourplex in Alaska costs as much as $2500/year, while some companies have plans for under $200.

Home Warranty Prices

The bottom line is that there is a huge variation. A $2,000/year plan isn’t anything like a $200/year plan. If the customer is paying as little as $200 a year, and enjoys a $500 repair covered for him every 2 years, he is still saving money. If that customer has been paying $2,000 a year, and has a cap of $500 on most repairs, he will end up paying a lot more on the home warranty than he would have paid local professionals to do the repair. The cost of the the plan is closely tied to what the policy actually entails.

The third factor we would look into when we review home warranty companies is the level of credibility this company has. The reason for that is that some companies would simply not honor the terms of the contract. In that case, the customer wouldn’t get the service when it needs it, making the home warranty obsolete. Unfortunately, it is not uncommon to witness such cases. There are tens of thousands of complaints across the internet, and while a large portion of them may be disgruntled clients who did not bother reading through the terms and conditions to understand the real meaning of the contract they’re signed on, some of them must be customers who have been genuinely fooled by their home warranty providers. In fact several of the biggest home warranty companies in the country have faced class-action lawsuits and either settled outside of court or lost the case.

Taking these three factors into account we can say that our conclusion is that a home warranty service has real value IF the coverage policy is adequate and honest AND the cost is lower than the projected average costs of repairs AND the company is going to follow its own policy and treat the customer in a respectful and honest manner. In other words, there are a lot of home warranty companies around but not all of them provide value to customers, but still it’s impossible to say it’s a valueless service.

For more data and references you are welcome to visit the following pages on our website:

James Edwin Surrey is the Marketing Manager and Editor of ReviewHomeWarranties ( the web's most comprehensive guide about home warranty companies. He comes from a strong background in the insurance industry in various data collection and marketing roles. He is a die-hard Lakers fan and an amateur stuntman.

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