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Posted: 6:00 a.m. Friday, May 23, 2014

Home Warranties Not Worth The Paper They're Written On

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Baruch College Alumni Magazine

By Clark Howard

ClarkHoward.com


Home warranties aren't worth the paper they're written on, but that hasn't stopped homeowners from buying them by the millions. Nor does it negate their effectiveness as a tool you can use to sweeten the pot if you have to sell your home in a tough market.

The Chicago Tribune   reports that 3 million homeowners bought home warranties last year. Yet at the same time, for six years running, home warranty companies have led a list of the most complained about companies in America out of 500 different categories tracked by AngiesList.com.

This is a profession that shames itself every morning it gets up. The industry as a whole is really more rip-off than out-and-out scam, but there are certainly some scammy players populating it.

Here's why home warranties aren't worth the paper they're written on

With a typical home warranty policy, you pay anywhere from $400 to $600 annually. In return, you supposedly get peace of mind when one of the mechanical components of your home breaks. But in my 24 years on the air, I've never taken a call where the warranty was a good thing. It's almost always a bad thing. You pay for peace of mind that is a mirage.

Here's how it plays out in reality: If something goes wrong in your home, the warranty companies are brutally difficult to deal with. They require you to use their contractor only. That contractor may or may not come on schedule while you're burning up in the heat of summer without AC or freezing in the dead of winter without heat. And then you've got a deductible on top of that!

A possible exception to the home warranty rule?

When I wrote Clark Smart Real Estate four years ago, I talked about why I didn't like home warranties for the purchaser, but why I liked including them as buyer's assurance when you're selling a home. Well, somebody called me out on that. They said it was terrible that I'm telling people to con the buyers of a house by giving a warranty that I already know upfront isn't worth the paper it's written on.

OK, here's how I see it. If you are selling a home, you are a merchant trying to give the buyer a sense of confidence about your used home. So for peace of mind you spend $400 on a piece of paper that's not worth anything. (But remember, you're trying to sell a home in a tough market.)

A recent news report I read bears me out on this. "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," according to The Los Angeles Times.

On the other hand, if you own a home and you're one of the 3 million homeowners that has been flushing money down the drain each year, don't do it anymore. Don't renew that policy! I'd prefer that you put $50 a month into a repair fund in lieu of renewing that $600 annual home warranty policy.

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