Can someone help me understand drawbacks of a home warranty?

Question

I've been told that a home warranty is a smart decision for landlording. I can pay the monthly amount for the service (~50$) and then when anything breaks I can have the tenant pay the deductible, making issues pretty low stress.

Is there anything I'm missing here? Has anyone else used a service like this and have opinions?

Ben Zimmerman · Answer

Insurance is a scam, don't fall for it.

This is a true story:  The 17 year old HVAC goes out in the middle of the summer. You place a call to your insurance provider and they tell you that a service member will be out next Tuesday to access the situation at the cost of a $99 deductible. You look up the reviews for the company that your insurance provider is sending to inspect the HVAC and find out that this company has a 2 star average review.  After all, the insurance company only cares that the issue is resolved cheaply.  The technician doesn't arrive on Tuesday, and instead calls to reschedule to Thursday (remember those 2 stars?). On Thursday he verifies the unit is in fact broken and is not repairable and will need to be replaced. On the following Monday he submits his assessment back to the insurance company for their approval.

The insurance company doesn't like the sound of replacing an entire HVAC, so they reject his proposed plans and instead send a second technician to evaluate the HVAC machine. Another week passes and this second technician has evaluated the machine and feels confident he can repair this 17year old HVAC machine instead of replacing it. The insurance company is overjoyed and gives this second technician the go ahead to repair the machine.

A few days pass as the technician orders the required parts to make the repairs, and once the parts have arrived he calls to set up an appointment to actually fix the thing and in the meantime a few more days pass. The technician comes out and Frankenstein's your 17yr old HVAC machine back together and gets it working. Your happy the machine is finally running again but are surprised when the insurance company tells you they are only covering 1/3 of the expenses, because things like freon, freon disposal, and a host of other services are not covered under your insurance policy. Pissed off you have no choice but to pay for 2/3 of the cost.

A month later, this Frankenstein'd 17 yr old machine dies out again and the insurance company wants another $99 deposit to come take a look at it a second time.

Meanwhile your tenant is pissed off because it took 3 weeks for the AC to get fixed the first time, and is demanding he not be charged for those weeks as the house was effectively unlivable without AC during the summer months. So you lost 3 weeks worth of rent, a $99 deposit, payed 2/3 of the cost of repair, and still have a broken machine because it should have been replaced and not repaired.

Conversely you could have just skipped the insurance altogether and had the HVAC properly replaced by competent technicians a day or two after it broke and gone about your merry way avoiding all of the mess.

Isaiah Williams · Answer

@Samuel Mallery I've used a home Warranty once and it actually worked out well in my favor. I bought a unit with a 22 year old furnace and the garage door opener was about as old. It also came with an old washer and dryer. Both were old and while everything worked, I had done my inspection and came to conclusion that all of these things would be going out relatively short. I bought the warranty and soon enough by that same winter everything went out! I only had to pay $65 for each appliance  for the contractor that came out and repair/ replace everything! I got a brand new furnace and washer for about $50 a month for 7 months plus the $65, and without the warranty would have cost me easily thousands! In my opinion Warranties; as all things; have their place! Do you research and make sure there is a legitimate need for one before purchasing,  as the vast majority of them that I looked at were scams or did not cover the things I needed covered!

I ended up using choice home Warranties if that helps!

David M. · Answer

@Samuel Mallery

Read the Home Warranty policy, or even brochure closely.  The ones that I have seen, not sure if they are market specific, only cover "minor" repairs.  Basically, non of the major components.  So, when something really goes wrong, i.e. when you really need help, all you have done is waste time for their technician to come to find out that they won't cover it.  Then, you need to call in the appropriate vendor, repair person, or replace the appliance.

For example, the policies/brochures that I have seen say (from memroy here) that for a forced hot air furnace they don't cover the burners, the fan / fan motor, the induction motor, the controller electronics, the ductwork, and the heat exchanger.  Yup, basically I think the only thing left is the outer cover and boxframe that it sits in.  So, basically when your tenants don't have heat, unless the issue is that they turned off the thermostat, the home warranty is useless.

Good luck.

Bill B. · Answer

No landlord has EVER said home warranties are good for rentals. I would believe you if you said a realtor told a new landlord they were a good idea, a realtor that didn’t own and rentals for sure. They’re a pretty bad deal for your own home, but you’d be the one without ac or hot water for a couple days and it would be your choice. Try forcing that on a tenant and you’ll at least be crediting rent if not getting them a hotel room if it’s in the summer or the winter.

Sally Fairchild · Answer

@Ben Zimmerman

Thankyou!  That is the best answer ever!

Can someone help me understand drawbacks of a home warranty?

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