Home Warranties Gain Popularity

When Debbie and Jim Agee purchased their Seal Beach home three years ago, the seller provided a home warranty policy. After a faucet started dripping, they called the company, which sent a plumber. He rinsed out the screen and told them the faucet itself was not covered.

“We had a problem with ants, only to find out ours were carpenter ants and those aren’t covered,” Debbie Agee said.

Frustrated and unhappy, Agee started shopping around. She studied various warranty polices and asked questions.

“Our first company acted like every phone call was a hassle. When it was time to renew, they suddenly become our new best friend,” Agee said.

The couple opted for a less expensive policy with the same service fee. Agee said so far she likes the new company and is saving money on home repairs.

Growing consumer consciousness, coupled with rising home prices, contributed to the largest annual jump in sales of home warranty plans in California in five years in 2000. The Home Warranty Assn. of California reports that last year 86.1% of home sales reported by DataQuick were sold with warranty plans versus 81.3% in 1999.

“Fifteen years ago you had to explain what a home warranty was. Not any longer,” said Dan Langston, warranty association president.

Established in 1984, the association is under the jurisdiction of the state Department of Insurance, which regulates the industry and handles consumer complaints.

Ninety-two percent of the companies operating in California are members, adhering to the home warranty association’s ethical standards and working closely with the California Assn. of Realtors.

Richard Daskam loves the policies, as a consumer and Realtor. An agent with Coldwell Banker Alliance Realty in Long Beach, he encourages sellers to provide the warranties to insulate them from problems after escrow closes. He has yet to hear a complaint.

“I have a policy for my own home. I’ve had them out several times for plumbing problems with never a problem,” he said.

Basic home warranty plans cover the home’s major operating systems for one year after the close of escrow. Standard coverage includes plumbing, electrical and heating systems, hot water heaters, garage door openers, limited pest control and most built-in appliances. The average cost for a basic plan is $255 for a home 5,000 square feet or less, but can start as low as $225 for condominiums and townhomes.

Companies offer optional coverage for items like washers, dryers, refrigerators, air-conditioning, limited roof leaks, pools and spas for additional fees. Option costs vary from company to company, and the fine print bears careful scrutiny. Pool and spa equipment ranges from $125 to $150, refrigerators from $25 to $50. Roof coverage costs $95 to $100, but there are limitations. Agee discovered that if you add roof coverage after the fact, the company insists on an inspection.

Service calls range from $35 to $100 depending on the policy. And policies are issued without an inspection of the property.

“The biggest misunderstanding consumers have is that they think it’s 100% coverage,” said Geoff McIntosh, broker-owner of Main Street Realtors in Long Beach and former president of the Pacific Coast Board of Realtors. Problems arise because people do not read the policies.

Gwen Gallagher, president of Old Republic Home Protection, added, “There is a misperception, often fed by the Realtors ... so they can close the deal, that the warranty coverage is a panacea.”

Home warranty plans are not the same as homeowners insurance. Covered systems and appliances must be in safe and proper operating condition at the effective date of the policy. Coverage is provided for items that become inoperable due to normal wear and tear. And companies do not cover unauthorized work. But calling a toll-free number or logging on to a Web site 24 hours a day, 365 days a year makes service requests easy.

No industry is immune to problems.

McIntosh had trouble with a company several years ago when the air-conditioning broke at a home he was purchasing. After waiting longer for service than he would have liked, the firm fixed the problem only to have it recur a week later. It worked for two weeks after the next service call before it died again. This continued until McIntosh called the company requesting some type of credit so he could purchase a new system. They refused. He never used them again.

Disagreements can lead to Small Claims Court actions.

Most companies send a letter to the customer if coverage is declined, providing them with Department of Insurance contact information.

“We don’t like to say no, because then we won’t get recommendations,” Langston said.

For consumers seeking a policy, the Home Warranty Assn. provides a checklist for selecting a reputable home warranty firm.

Referrals also merit consideration. Ask home inspectors, Realtors, neighbors, friends or relatives who have purchased homes recently and escrow officers for their preferences.

Looking to future coverage possibilities, Langston noted that while plans cover telephone wiring, technological advances may necessitate expanded coverage.

Years ago there was more solar coverage. A few companies offer it today, but the current energy crisis may bring changes.

Comparison shopping, plus carefully reading the policy via brochure or Web site, is important. Look at basic costs, service fees, coverage and company stability.

Ask questions to ascertain the coverage that is compatible with the type of home being purchased. Read and reread the policy to help prevent problems.

For More Information

Department of Insurance: (213) 897-8921

Home Warranty Assn. of California: https://www.warrantyassn.com/hwac

Old Republic Home Protection: https://www.orhp.com

Buyers Home Warranty Company: https://www.bhwc.com (also has service information on the brochure in Spanish, Chinese, Korean, Vietnamese and Japanese)

First American Home Buyers Protection: https://www.firstam.com/warrhttps://anty

American Home Shield Warranty Plan: https://www.ahswarranty.com

California Assn. of Realtors: https://www.car.org

Items Not Covered

These items are not covered by a home warranty policy:

* Routine maintenance.

* Repairs and replacement resulting from fire, flood or vandalism.

* Permit costs, bringing systems or appliances up to current building codes and similar requirements.

* Problems arising from repairs or work not done to code, whether there are waste lines too small for the washer or overloaded electrical circuits.

Many problems can be avoided if buyers have homes inspected by qualified licensed contractors before opening escrow.

Home Warranty Facts

Statewide, 404,567 policies were sold last year. For homeowners who had policies at the close of escrow, 30% renewed when they expired. Of that 30%, 75% renewed the following year. There are 1.7 service calls per contract.

Source: Home Warranty Assn. of California*

Deborah Prussel is a Long Beach-area freelance writer.