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Why a Home Warranty May Not Give You the Fix You Crave

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The yearly price of a home warranty can vary significantly depending on the policy and company, with costs ranging from around $300 to $1,000.

It's every homeowner's nightmare — something is broken, and it's going to cost a lot of money to fix or replace it. Unfortunately, no matter how well you take care of your home, sooner or later, an appliance or major system is bound to croak.

Some homeowners plan for this by purchasing a home warranty, which can cover some costs related to these units' normal wear and tear. But before you commit to one, make sure you really understand what the warranty is offering.

For example, even nationally recognized home warranty companies won't necessarily guarantee that a replacement item will be the same size, color or brand as its predecessor.

In a complaint to Consumer Affairs, a website that provides consumer news and reviews, an outraged homeowner included a photo of her white replacement refrigerator that was too tall to fit under the cabinets in the space where the old one had been. According to the complaint, the homeowner had waited a month to receive the replacement for her black fridge and only kept the too-large white one after the warranty company said a "restock and transportation fee" would be required to send it back.

While this isn't every customer's experience with home warranties, those failing to read the fine print of their contracts could end up disappointed.

In today's hot housing market, with some buyers waiving the home inspection and stretching their finances to make a higher offer, the promise of discounts on home repairs can be understandably attractive. But while home warranties have their benefits, homeowners should know that they can't buy total peace of mind for the price of a contract.

Know what you're paying for

A home warranty is an optional policy for homeowners that covers the cost of repairs for appliances and systems that experience problems. Annual costs can vary significantly depending on the policy, with premiums ranging from $300 to about $1,000.

In addition to annual premiums, if you file a claim, you'll also have to pay a service fee for a technician (who is chosen by the home warranty company) to come to your home and assess the problem — even if the warranty company ultimately denies your claim. Again, the price will depend on your policy; fees generally run between $75 and $150 per visit.

According to the National Home Service Contract Association, an industry trade organization based in Kansas, home warranties generally cover costs related to the "normal wear and tear" of systems and appliances such as interior plumbing, heating, electrical, the dishwasher and oven. While some consumers may expect major units like the central air conditioning, refrigerator, and washer and dryer to be covered under a basic plan, these might require additional coverage.

Further, claims related to "preexisting conditions" (issues predating the purchase of the warranty) and the damage caused by improper maintenance or use are likely to be denied by the warranty company.

"My number one piece of advice is to maintain your home," says Art Chartrand, former executive director of the NHSCA. Though warranty companies tend to take a reasonable approach, he says, the homeowner is ultimately responsible for keeping their home in good condition. If you're a technician and "you come into somebody's home, and you find that they don't know what an air filter is and haven't changed it in years, that might be an issue."

Research the company's history to get a fuller picture

While you may start your home warranty research on company websites and best-of lists, these won't tell the whole story of what it's like to utilize your coverage. Since some warranty companies have a better history than others, you can get a clearer idea of a company's reputation by checking out sources like government websites and customer reviews.

For example, a consumer alert from the office of Washington, D.C., attorney general Karl A. Racine urges consumers to read home warranty contracts carefully. The warning encourages consumers to know what the contract does and doesn't cover, be wary of exaggerated claims, and seek more information about the company, preferably from someone who has worked with it before.

Over the years, state officials have also filed complaints against some warranty companies. For example, in 2014, the New Jersey Division of Consumer Affairs filed a complaint against a leading national home warranty company for denying claims through deceptive means.

The company was accused of blaming malfunctions on improper maintenance "even when technicians declared that the covered home systems or appliances had been properly maintained, and/or had failed for reasons not related to poor maintenance or preexisting problems." According to the complaint, one customer was told that her air conditioner claim would be denied unless she could provide 12 years of maintenance records.

Consumer reviews, the website for the attorney general in your state, and sites like the Better Business Bureau can all be valuable resources for researching a home warranty company's history and distinguishing those with positive customer reputations and track records. The Better Business Bureau alone lists 85 home warranty companies with "A" or above ratings, which could be an excellent place to start your search.

Find out when exactly your coverage begins

Jessica Hoff, broker-owner of Century 21 JRS Realty in Clark, New Jersey, has seen mixed results for her clients with home warranties.

"On the one hand, there was a client that had a problem with a broken toilet on a Friday," she says. "They called the home warranty company over the weekend, and someone was there Monday. It was a $150 deductible, and they wound up getting this whole thing done. That was a really positive experience."

Meanwhile, another client had the central air conditioning die three days after closing, but the company refused to cover any claims for the first 30 days. "It's 100 degrees in New Jersey," recalls Hoff. "It's the middle of summer, and he has to wait 30 days for the central air to be covered."

It's pretty common for home warranty companies to start coverage 30 days after the purchase of the contract. Though this will be spelled out in the agreement, it's a detail that can easily be overlooked. Waiting 30 days for a new dishwasher may be inconvenient — but waiting that long for a working HVAC system could be more problematic.

Read the fine print

Big-ticket items can have low coverage limits in some home warranty plans, leaving consumers to cover the rest of the bill. Kevin Brasler, the executive editor of nonprofit consumer review organization Consumers' Checkbook, points to furnaces as an example of an expensive unit to repair or replace, with many home warranty plans covering only a fraction of anticipated costs. "That's not total protection," he says, "and that's not peace of mind as far as I'm concerned."

Several sample contracts from leading home warranty companies list a limit of $1,000-$2,000 for work related to heating and air conditioning, when a new furnace or boiler may cost thousands of dollars more. So while consumers may save money with a home warranty, you should still expect to pay out of pocket when something significant needs to be replaced.

In addition, Chartrand recommends that homeowners inquire specifically about any smart appliances they own to understand the details of what coverage could be available to them. While home warranty companies try to keep up with the pace of technology, he says, there can still be a lag in coverage options for homeowners with newer smart appliances.

How to get a better experience from your home warranty

"Before you have something break, take a look at your home warranty contract and become familiar with it," advises Chartrand. Consumers may be leaving money on the table simply because they forget or aren't aware of items that could be covered under their policy. His advice for those wanting to get the most out of their home warranty is to always check it before paying to replace something yourself.

"For example, a lot of people have coverage in these contracts for light fixtures and faucets," he said. "Frankly, I forgot one time. I had a faucet break and I went out to buy one and went 'wait a minute, my home warranty covers that!'"

Alternatives to home warranties

Suppose you'd rather avoid navigating the specifics of a home warranty policy. In that case, you could take the cash you would put toward purchasing a home warranty and stash it in an emergency fund instead.

For example, let's say you bought a home warranty plan that costs $50 a month and a $150 charge for every service call. If your dishwasher needed to be repaired after the second month, you would already be paying at least $250 before it was fixed.

If the repair had cost $250 or less, that money might have been better off in a savings account that you could have pulled from while choosing your own preferred servicing company. However, suppose the dishwasher needed to be replaced. In that case, it could easily cost over $600 for a 24-inch unit — potentially making the home warranty worth it (depending on when it broke and if the replacement was covered in your plan).

Another option is to explore adding "endorsements" to your homeowners insurance. These can expand your coverage to pay for electrical or mechanical damage to appliances, systems and utility lines, though they likely won't cover damage from normal wear and tear.

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