The Advantages and Disadvantages of Home Warranties

by Nicole Scimio | Oct 8, 2024 | Blog, Featured Posts, Investment Rental Property, Owner Resources, Property Management Education

The Advantages and Disadvantages of Home Warranties

Home Warranties – Yay or Nay?

Today, we’re going to discuss the advantages and disadvantages of home warranties.

We also want to touch on some key factors that people may not think about when considering whether or not to purchase a home warranty when purchasing a property. 

What Exactly is a Home Warranty?

A home warranty is a policy that you can purchase for a set amount for the year that covers most major mechanical systems and appliances within the property, so that if they malfunction, the policy will cover the expense to repair or replace that item. 

On the surface, a home warranty sounds so good! 

However, there are drawbacks we’d like to point out as well, especially when purchasing an investment property. 

Advantages of Home Warranties

• Home warranties often cover many common maintenance issues in a home
• They have a set price so you know your expenses ahead of time
• They can potentially save you money
• Sometimes they’re included with the sale, so it wouldn’t cost you additional money to have it if provided by the seller of the property
• The home warranty company will assign a vendor, so if you don’t know a specific vendor for your problem, you don’t need to have a vast network of plumbers, HVAC, etc.

Disadvantages of Home Warranties

• Oftentimes, there are a lot of loopholes on home warranty coverage
  • Something you might think would be covered may not actually be covered under the warranty unless you pay more for upgraded coverage
• Sometimes it takes the vendor a long time to respond
• There’s a copay for each service call, which could cost you an additional $50-100 for each time you need to use the home warranty
• You have no control over which vendor the home warranty company chooses
• You have to renew home warranties every year
• The process to place a claim with a home warranty is cumbersome and can take an extended period of time to complete with no guarantee of reaching a representative
  • Once you’ve placed your claim, the home warranty company sends a vendor and you have to wait for said vendor to call you
  • Introduces a lot of back and forth and a lot of different parties involved

How a Home Warranty Can Be Good for an Owner-Occupied Property

A home warranty is best utilized when the owner of the property lives in the property. 

Mainly, because the owner is receiving the advantage of saving money, they are likely more willing to accept some of the disadvantages associated with utilizing the home warranty. 

To a homeowner, things like not being able to choose the vendor or waiting a bit longer for a repair to be made may not seem as big of a big deal when there is the potential to save a few hundred (or even thousands) of dollars. 

A homeowner also may not have the network of vendors that a property management company has, and not necessarily have strong opinions on what vendor to use. 

However, when a renter is paying rent on a monthly basis, they are going to expect the repair to be made in a professional manner within a reasonable amount of time. 

Vendor choice plays an important role as well! 

A property manager is going to partner with a vendor who is fully insured and performs quality work. 

On the other hand, the home warranty company is more concerned with finding a vendor for the lowest price, rather than mainly being concerned with the quality of work. 

A home warranty company generally also has the tendency to repair problems instead of replacing them because it will result in more service calls – meaning more co-payments from you, the homeowner. 

Example of a Home Warranty in Use

A property that we (Arbors Management, Inc.) were managing had a home warranty in place, and the furnace stopped working in the middle of winter. 

So, we placed the service call for no heat with the home warranty company, who assigned the work order to a vendor that we didn’t work with on a regular basis or have in our trusted vendor network. 

The vendor assigned by the home warranty company was not able to service the property for 2 weeks. 

In short, the residents in the property were left with no heat for 2 weeks in the winter, resulting in the need to compensate their rent for that amount of time. 

This delay in maintenance could have also resulted in frozen pipes and additional damages. Thankfully in this scenario, it did not.

When you take into consideration the price of the home warranty for the year, service call fee, and the prorated rent that the owner lost as a result of the delayed response time, it ended up costing the owner more money than if we had simply placed a service call with one of our trusted vendors and addressed the issue quickly ourselves.

Conclusion

There can be a lot of advantages to utilizing a home warranty, but we find that they’re best utilized for owner-occupied properties. 

For investment properties or resident-occupied properties, we find that it’s typically best to not purchase a home warranty, and to arrange maintenance directly with the vendor. 

Taking this route cuts down on the time it takes to maintain the property, and results in higher satisfaction for the residents – and happy residents pay their rent. 

On the flip side, people who have to wait weeks for maintenance requests to be taken care of (a.k.a. unhappy residents) move out or don’t pay rent. 

Obviously, we want to keep our residents and owners as happy as possible and provide excellent property management services that are within our control.

Ultimately, it is our recommendation that you do not purchase a home warranty for resident-occupied investment properties, as it could result in (all of the above) unsatisfactory experiences for your residents.

If you want to partner with a property management company who will address maintenance requests in a timely manner, cares about your property and residents, and wants you to succeed, we’d love to give you a free consultation!