Many rental property owners are always in a dilemma on whether to purchase a home warranty or not. The value of a home warranty is not clear to most people, especially those who have to rent a house with older house appliances or systems, which may be wearing down. However, buying a home warranty can relieve a rental property owner of some of the financial burdens that occur when major home systems or appliances break down. A home warranty is purchased in advance, but the savings could be worth the extra expense. To help you decide wisely, we have compiled an overview of the pros and cons from a property management perspective.
What is a Home Warranty?
The first thing to know is that a home warranty is not the same as an insurance policy. It is a service contract between the homeowner or rental property owners and the home warranty company to incur the cost of replacement or repair of covered items. The items may include major kitchen appliances, plumbing, electrical, air conditioning, and heating systems. A home warranty does not cover structural features such as windows and doors. On the other hand, homeowners insurance covers risks such as fires, property crimes, hail, and some types of moisture damage that may affect the whole structure and the homeowner’s personal belongings. Many of these are not threats in North county San Diego.
What is the cost of a Home Warranty
The cost of a home warranty is in the hundreds of dollars annually, paid in advance or installments if allowed by the warranty company. The value of the warranty plan is determined by the type of property such as condo, duplex, single-family detached, or townhouse, and if the homeowner opts for a primary or extended warranty plan.
The age of the property is not a consideration when determining the cost unless it’s a brand new home, which will raise the cost of coverage. Also, the size of the property is irrelevant unless it exceeds 5,000 square feet. Separate structures in the property such as guest houses are not covered in the basic policy, although they can be included for an extra fee. But, garages are included as an essential element of the warranty.
Apart from the annual premium paid, home warranties attract a trade call fee or a service call fee of about $75-$125 each instance a warranty holder requests for an assessment of a problem. If the problem needs different contractors to visit, such as an electrician and a plumber, the homeowner may be required to cater for both services.
A home warranty is not a guarantee that the homeowner will not spend on home repairs. A home warranty does not cover some common problems in the home. The reason could be the homeowner failed to purchase coverage for the item, or the warranty company does not cover the specific item. You should also be aware that home warranties will not cover poorly maintained components. Sometimes, the warranty company will deny a claim, but you will still pay the service fee on top of paying for the cost of repair out of your pockets.
Pros of a Home Warranty
- A home warranty protects against unforeseen and expensive repair bills; this gives the homeowner peace of mind. The warranty acts as a buffer for homeowners who do not have an emergency fund or want to save it for other uses. A home warranty is also ideal for people without practical skills as they do not have to worry about getting a contractor whenever they have an issue. If you have expensive taste in appliances, it would be best to purchase a home warranty.
- When selling or purchasing a home, home warranties often come up during the negotiations. Home warranties assure home buyers with limited information on the maintenance of the home’s components or the building quality when dealing with a new home. A warranty is also useful to people who have used all their savings on homeownership hence want to evade any extra expenses on the house.
- Home sellers who offer the buyer a fully paid one-year warranty when they buy the house provides a degree of protection against complaints by the buyer if they discover defects or problems after closing the sale. But, a home warranty is not an exemption to disclose known issues within the home by the seller.
Cons of a Home Warranty
- Home warranty companies do not respond to problems on time. This results in the repairs taking too long, which may make the tenant unhappy if the item is vital to daily living; such as an air conditioner. Keep in mind the overarching goal when owning rental property should be to have long term tenants because this keeps make ready costs down. Maintenance repairs that are not handled in a timely manner is the number one reason tenants move out.
- A home warranty company can deny a claim if the item in question is poorly maintained. It is sometimes difficult to prove that you have been maintaining your appliances, especially if there are no records to prove the claim. This mostly affects older rental property; you should know in advance that warranty companies use improper maintenance as a basis for denying a justifiable claim.
- Home warranty companies have set dollar limits for every repair or annually. The limits greatly vary with no specific limit; it can go as low or as high as they deem fit.
- When you request for a replacement or repair of a system, the warranty company will be the final decision maker if your claim is justified. They may decide to repair an item you wanted to be replaced, and you do not have to agree with the decision.
- In case they accept to replace an item or appliance, sometimes they get to choose the model or make without consulting the homeowner, and you have no say about it.
- Sometimes warranty companies do not repair or repair appliances damaged by a power surge.
To buy or not to buy a home warranty is a personal decision. It is the same as not purchasing insurance. Lacking a home warranty could help you save money, but it is a risk. Rather than purchase a home warranty our opinion at Raintree Property Management is to save up a maintenance repair fund of about 3 month’s rent
It has been our observation that warranty companies do not always provide the best services. We have a list of companies in North County San Diego, California who we are sure can cater to your needs. The companies are reliable and we are confident about the services they provide. Before you settle on a home warranty company, make sure you understand the fine print and what they cover or not cover. Also, take note of the service fee whenever you request for repairs.
Bottom Line
A home warranty from a reputable company could be worth it to some homeowners as they give you peace of mind knowing that your expensive systems and appliances are covered. A better solution is for landlords to save up 1.5 times the monthly rent for use for annual maintenance. If the property rents for $2,000/month save up $3,000 for annual maintenance. When the devices or systems break down, contact a quality local repair company that can solve the problem in 48 hours or less. In the long run, you may realize that you have spent more by buying a home warranty as opposed to funding the repairs out of a repair fund. Contact Raintree Property Management for more advice. We manage single family homes and condos in North County San Diego. Mostly in Carlsbad, Vista, San Marcos, Encinitas, Solana Beach, Del Mar, Oceanside, Escondido and North San Diego north of 56.
