Explore the disadvantages of buying or having a home warranty for your investment properties.
As a real estate broker that primarily deals with
property management, we have seen many property owners opt for a home warranty when they purchase investment properties. While home warranties offer a range of benefits, there are also some downsides that real estate investors need to be aware of.
Limited Coverage
One of the biggest disadvantages of home warranties is that they offer limited coverage. Home warranties typically cover only specific systems and appliances, and there are often exclusions and limitations to coverage. This means that if a repair is needed for something that is not covered by the warranty, the property owner will have to pay for it out of pocket. Furthermore, some home warranty providers will deny claims or delay repairs, leaving the property owner to handle the repair or replacement themselves and beg for reimbursement.
High Costs
Another disadvantage of home warranties is that they can be expensive. The home warranty cost varies depending on the coverage, but the annual fee can be several hundred dollars or more. If the property owner doesn't need to use the warranty during the term, they will have paid for something they didn't use. Additionally, even if the property owner does need to use the warranty, they may still have to pay a deductible or service fee, which can be costly.
Contract Terms
Home warranty contracts typically have strict terms and conditions that property owners must adhere to. For example, if the property owner doesn't maintain the covered systems and appliances properly, the warranty may be void. Additionally, some home warranty providers require the use of their approved service providers, which can limit the property owner's options for repairs and replacements. This can be problematic if the provider's service is not available in the area or if their service is subpar.
Exclusion of Pre-Existing Conditions
Most home warranties exclude coverage for pre-existing conditions or defects. This means that if a covered system or appliance has a problem that existed before the warranty was purchased, the warranty won't cover the repair or replacement. This can be frustrating for property owners who were unaware of the problem before purchasing the warranty and may have to pay for the repair themselves. Most, if not all, Home Warranty companies will not cover the cost of permits or any upgrade needed for new building codes.
Claims Denial
As mentioned earlier, home warranty providers may deny claims or delay repairs, leaving the property owner to handle the repair or replacement themselves. In some cases, the warranty provider may argue that the problem is not covered by the warranty, leaving the property owner to pay for the repair themselves. This can be frustrating for property owners who purchased the warranty to avoid unexpected repair costs.
Service delays and lack of vendors.
Another disadvantage of home warranties for investment properties is the potential for service delays and a lack of vendors. Home warranty providers often contract with service providers in specific areas, and if there is a high volume of service requests or a shortage of providers in the area, property owners may experience delays in getting repairs completed. Additionally, some providers may have a limited number of vendors, which can lead to longer wait times for appointments or a lack of options for repairs or replacements. This can be frustrating for property owners, especially if the repair is urgent or the property is occupied by tenants. As a real estate broker, I recommend that property owners research the number of vendors available in their area before purchasing a home warranty to avoid potential delays or service issues.
In conclusion, home warranties offer a range of benefits, but they also have several disadvantages that real estate investors should consider before purchasing one. The limited coverage, high costs, strict contract terms, exclusion of pre-existing conditions, and claims denial are some of the biggest disadvantages of home warranties. As a property manager, I recommend that property owners carefully review the terms and conditions of a home warranty before purchasing one. Additionally, property owners should consider the cost of the warranty and the likelihood of needing to use it before making a decision. If the property owner decides to purchase a home warranty, they should carefully research providers and read reviews from other property owners to find a provider that is reliable and responsive. At the end of the day, finding a viable home warranty in our area is super tough to do.
Here is a list of five of the most prominent home warranty companies:
- American Home Shield - One of the largest and most well-known home warranty companies, American Home Shield has been in business since 1971 and offers a range of coverage options.
- Choice Home Warranty - Another popular home warranty provider, Choice Home Warranty, offers plans for both home buyers and sellers, as well as a range of add-on coverage options.
- Select Home Warranty - With coverage in 48 states, Select Home Warranty is a company that offers a variety of plans and coverage options for both home systems and appliances.
- First American Home Warranty - With over 35 years in the home warranty business, First American Home Warranty offers plans for both home buyers and sellers, as well as a network of over 15,000 contractors.
- Total Home Protection - Total Home Protection offers a range of coverage options for both systems and appliances, focusing on fast, reliable service and competitive pricing.
While the home warranty industry has several prominent providers, we have found that each company has its own unique set of challenges and limitations. As a result, we understand that it can be difficult to confidently recommend any single home warranty company to our clients. Our team suggests that individuals looking to purchase a home warranty carefully research and compare all available options to find the provider that best fits their specific needs and preferences.
Still, trying to decide whether a home warranty suits your investment property? Let our team at Authority Property Management help you make an informed decision.
Contact us today for a free consultation & understand how we can help you protect your investment without wasting your money on ineffective home warranties.
