A question we receive from time-to-time from our Owners, is “Should I Buy a Home Warranty?”
As you probably know, a home warranty is a service contract that is designed to pay for home repairs. So, you pay a home warranty company an annual premium, which could range from a few hundred dollars a year to well over $1,000 per year, depending on options.
How Home Warranty Companies Work
The theory is that, when a repair is needed, you simply call the home warranty company and, voila, the repair is made with minimal expense.
For someone who is on the outside looking in, I can see how home warranties might seem like a great idea. They may think… “No maintenance! What a great deal!"
But, in reality, I think there are many reasons why home warranties do not make sense for investors.
Why Home Warranty Companies Do Not Make Sense
• Deductibles/Service Fees: – All home warranty companies will charge a deductible or service fee for every repair item you initiate. Those fees could range from $75-$100 per call. In some cases, you could call a local repair company and end up paying less than the service fee, depending on the repair.
• Not Everything is Covered: – There is a lot of fine print inside home warranties. And, without question, there are instances where home warranty companies will not cover a repair that you thought should be covered. There are many examples where someone has called a home warranty company, paid the service fee and found that the repair was not covered.
• Control/Response Time: – This is where we, as a property management company, have the biggest complaint. When we call a home warranty company for a repair item, we don’t know who they are going to send. Our Vendors, for example, have all been vetted, they all carry the property insurance and, most importantly, they all offer very fast response times.
In many cases, local Vendors that are used by these large home warranty companies are required to provide deep discounts. As a result, we oftentimes see very slow response times from these Vendors. Obviously, Vendors are going to choose higher margin work in front of the lower margin work. As a result, depending on the repair, your property could be in danger and, at a minimum, your Tenant will become frustrated, which could cause them not to renew their lease.
As you know, vacancies are expensive and a real cash flow killer. It's critical that all maintenance is handled with high efficiency and the right way.
Again, while home warranties may seem like a great option, we generally discourage our Owners from using them for a variety of reasons.