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Are home warranties worth the cost?

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'You'll do better to place that money into a home-repair fund' rather than a warranty, nonprofit says
Homes that come with warranties sell 11 days quicker and for an average of $2,300 more than those without

Homes that come with warranties sell 11 days quicker and for an average of $2,300 more than those without, according to a recent survey by one of the country's largest warranty providers.

But one consumer organization says such warranties aren't worth the cost, which is $400 to $600 a year.

"Instead of buying one of these policies — or placing any value in the one provided when you buy a home — you'll do better to place that money into a home-repair fund," says Consumers' Checkbook, an independent nonprofit that publishes local magazines in seven locations, including Boston, Chicago, San Francisco and Washington, D.C.

Home warranties have been vilified before, but never by an organization with a solid reputation like that of Consumers' Checkbook, which has won the National Press Club's First Place Award for Excellence in Consumer Journalism. Like Consumer Reports, the D.C.-based nonprofit does not accept donations from businesses and its publications carry no advertising.

The warning about warranties does not include those comprehensive warranties provided by home builders on brand-new houses. Rather, it is solely about those on existing homes.

Actually, they aren't really warranties but service contracts that insure against the repair of a home's major appliances, heating and cooling systems, plumbing systems, circuit breakers and a few other things.

But while the potential breakdowns covered by home warranties might be unpleasant, Consumers' Checkbook says, they are often not catastrophic. Those bigger, more expensive repairs are what insurance is for — to cover stuff you can't afford to repair yourself.

"When you buy insurance against risks you can afford to cover on your own," the magazine says, "you end up paying for sales commissions and expenses and company profits rather than for claims paid" by the warranty company.

"Buying a home warranty is like buying a (very) limited extended service contract on a bunch of appliances," says the group.

Nevertheless, warranties have become almost universal in today's market. Not only do they appeal to would-be buyers, who believe they're covered should the air conditioner break down or the refrigerator kick out during their first year of ownership, they also appeal to sellers, because they, too, are covered during the listing period.

Buyers and sellers tend to put their faith in the warranties, but only until they are actually needed, according to the magazine, which notes that the files of consumer affairs agencies are "stuffed" with complaints about warranty companies.

Two major warranty companies were contacted for this story, but declined to comment. But Art Chartrand, counsel for the National Home Service Contract Assn., which represents the largest warranty companies, called the Consumers' Checkbook report "silly" and said it was "full of extreme factual errors."

Chartrand said the policies his members write are for the repair and replacement of systems because of normal wear and tear. "If you are competent at handling repairs, you may not need a warranty," he said. "But most consumers are not."

Consumers' Checkbook found a number of other issues with these policies:

• Coverage. Warranties do not cover the most expensive repairs you might face. Of the half-dozen policies from the major warranty firms examined by Checkbook, none covered roofs, leaky windows or skylights, basement moisture problems or chimney repairs. And some charged extra to cover plumbing and heating, ventilation and air conditioning systems.

Chartrand said warranty companies are expressly forbidden by most state laws to cover structural components.

There are other exclusions too. Ice makers, which break down often, usually are not covered. Most policies don't cover plumbing backups caused by tree roots or "foreign objects." And if your floors or walls have to be ripped out to get to the problem, the nonprofit says, "don't expect the warranty company to pay to make everything look nice again."

• Cost. Because of the "thin coverage," plus the $75 to $100 service charge per claim, the costs don't add up in your favor unless you have a particularly bad repair year.

• Contractors. You don't choose the plumber, electrician or other contractor who comes to your home. Rather, you call the warranty company, which dispatches the next-in-line repair service with which it contracts. But although warranty companies say their contractors are pre-screened and do good work, Checkbook isn't convinced.

It found that of the 20 top-rated HVAC contractors it selected at random, not one participated in warranty programs. In fact, these contractors "overwhelmingly disdained" these types of warranties, the publication said.

Chartrand said that the only way companies can control the quality of the service offered is through their networks of local providers.

His advice: Check with your local real estate agents and ask them whether a warranty is a good buy. "We will stand by what they say," he said.

lsichelman@aol.com

Distributed by Universal Uclick for United Feature Syndicate.

Copyright © 2014, Los Angeles Times
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