Home warranties are not always what they seem
Posted
Mar 25 2008, 01:53 PM
by
Karen Datko
This post comes from David Wood at partner blog ConsumerAffairs.com.
"Protect your home, save money, and avoid the hassles of home repair now!" began the junk e-mail I received about American Home Shield, one of the largest providers of home warranties.
Not to be confused with a builder's warranty, a so-called home warranty -- actually a service contract -- is typically purchased for existing homes, especially homes sold by real estate agents. These service contracts generally cost $300 to $600 for a yearly basic-coverage plan that includes items like ceiling fans, water heaters and furnaces.
Here's how a home warranty is advertised to work: Instead of calling a repair company when something breaks down, you call the warranty company, which sends out a local contractor to diagnose the problem. You'll pay the contractor a service-call fee, typically $50 to $100, and the contractor informs the warranty company about what needs to be done to fix the problem.
Once the OK is given, the contractor repairs or replaces the problem item, and you don't pay a cent more. Or so the ads promise.
Many consumers do find that these plans work just as advertised. However, many others are reporting serious problems with their warranty company, including American Home Shield.
Popular with Realtors
Owned by ServiceMaster, which also operates TruGreen and Terminix, AHS is a favorite among real estate agents who use the warranty as a perk for clients.
One such agent is Anna, of Northern California. "My clients used to complain about AHS, but I always gave benefit of doubt to AHS," Anna admitted. "I figured every company has their share of unhappy complaints."
What Anna didn't know is that the same issues that plagued her clients would soon strike her personally.
Anna had a bathroom faucet go on the blink, so she called AHS. Their contractor refused to make the repair, so Anna paid out of her own pocket for a different plumber to make the 10-minute repair.
Her next problem came in the form of a malfunctioning air conditioner.
"The service technician reported that there was lack of maintenance and therefore it has to be replaced and cannot be covered under AHS," Anna wrote. "I paid separately to another vendor and he said the A/C unit is perfectly fine except that there is a leak that has to be fixed."
"Every time I call AHS for a problem, they deny the service either on grounds of lack of maintenance or abnormal wear and tear. How do you define abnormal wear and tear and lack of maintenance?" Anna asked.
No response
We contacted American Home Shield to ask the same questions, but the company did not return our calls.
In reality, AHS is no different from other home-warranty companies when it comes to exclusions and small print. Warranty contracts say a claim can be denied for lack of maintenance, improper maintenance, improper installation, pre-existing problems, code violations and numerous other reasons.
Further, the contract says coverage applies only if the item or system breaks down due to "normal wear and tear."
Considering that most home-warranty plans do not require a prior inspection, the contractors and warranty companies are the sole judge of what is classified as "normal wear and tear" and "lack of maintenance."
"Our furnace self-destructed and AHS denied to fix it," said Phil, of Lake Forest Park, Wash. "AHS says we did not properly maintain the system, so they canceled the warranty until we replace the furnace. I don't understand how a warranty we have been paying on for seven years can be declared nonexistent," Phil complained.
Fine print
The reason that a warranty company can call the shots is because of the contract. If you signed it, you're stuck with it, whether you read it or not.
Steve, of Land O' Lakes, Fla., discovered the details of his contract when he filed a claim with Old Republic Home Protection.
Steve's air conditioner was having major issues, and Old Republic decided the unit needed to be replaced. As a real estate agent, Steve had recommended Old Republic to his clients, so he didn't think that getting his own problem fixed would be a problem.
"Boy, was I wrong," Steve said. "Even though I was told a replacement unit would cost at least $4,000, Old Republic said they would pay me only $500."
After useless discussions with Old Republic managers, Steve ended up paying $4,200 to replace the unit himself. "Old Republic never did send me the $500," Steve said.
Steve ran into a brick wall because of the Old Republic terms and conditions, which say: "We reserve the right to provide cash in lieu of repair or replacement in the amount of our actual cost (less than retail) to repair or replace such item," a clause commonly found in warranty contracts.
Insider advice
So what's a homeowner to do? Many consumer advocates would say it's better to "self-insure" -- setting aside a reasonable sum each year to cover routine maintenance and finding reliable local contractors to do the work. This is true of "extended warranties" in general.
Surprisingly, some industry insiders might agree.
"I would not recommend someone buy a warranty when the home has lots of known pre-existing conditions," said Lorna Mello, vice president of Old Republic Home Protection. "Home-warranty plans cover items that fail due to normal wear and usage after the effective date of the plan."
Mello also emphasizes the importance of reading the contract.
"I would advise they read the home-warranty plan to clearly understand the terms and conditions of coverage so they have a clear understanding of what to expect."
Other articles of interest at ConsumerAffairs.com:
"Many pet foods still missing from store shelves"
"Contraceptive pill may help conception"
"More counterfeit money order scams reported"
