The Home Warranty Scam

Posted on | Education/Informing, Opinion

Owners considering a home warranty for their rental should know what property managers do and why you are better off not using one for your investment property.

When property managers send a vendor they know to a managed home, they are familiar with their prices, workmanship and how they have conducted themselves historically.

You see, not all vendors work well with tenants, who can be a mixed bunch.  Some are easy to work with, some not so much.  We trust known vendors to be kind and patient with our tenants and work around schedules and the presence of minors at the home.

Trained vendors know not to divulge repair findings to tenants who always have a different opinion than landlords on what should be done.  They have proven to be ethical, and we know they aren’t going to take advantage by misdiagnosing repairs for profit.  

Many times known vendors will throw in freebies if they are at the home already.  They are familiar with our expectations, lease, and safety concerns that can affect landlord liability.  They know they will enjoy more work from us when they do a good job for a fair price and will go back at no cost if necessary later.

They select their vendors by the lowest bidder

Home warranty companies are a business and their purpose is to collect fees while repairing as little as possible.  By all appearances they select their vendors by the lowest bidder. 

Warranty vendors are not usually customer service oriented, because they don’t need to be.  They don’t work for the homeowner, the property manager or tenant, and they tend not to aim to please any of the above.  This is where the real difference comes in, and why we struggle with wanting owners to have choices but also wanting to maintain our personal level of customer service as well as adhere to landlord/tenant law.   

System replacements are rare, like winning the lottery

Owners can think that once they buy a home warranty, they will have no further maintenance costs, and that is never the case. Warranties typically have many exclusions to coverage in the fine print. 

Vetted Vendors Versus Warranty Vendors:

  • Exclusions affect your bottom line. Many repairs end up not being covered by the warranty, even though you paid the yearly cost plus the appointment service fee.  Their vendors will offer to make the uncovered repairs, but at an astronomical price, because they know many agree, simply because they are already there and have no time to compare prices.  We decline inflated offers and end up sending out a trusted vendor.  This can annoy your tenant, since it’s only to save you money, which is our job  You must still budget for major repairs and exclusions to coverage.
  • Warranty vendors typically have horrible ratings, no internet presence or are recently established.  They work for warranties as a way to generate business that they wouldn’t have based on a solid reputation and longevity in their field.  Many do not stay in business long, so a new system (rarely achieved) warranty may not be there when the time comes to use it.  
  • Warranty vendors may not be available for weeks, and landlords are required to make timely repairs and on necessary systems within 1-2 days, especially heating/cooling and appliances which are the most common repairs.  Warranties are never an option for emergencies like gushing water or leaking HVAC systems, unless you don’t mind costs like secondary damages and insurance deductibles.
  • Warranty vendors rarely arrive on time and require 4-hour arrival windows seldom offering a “call ahead” option.  This is hugely inconvenient for tenants with obligations like jobs and families – like you do. Unhappy tenants do not stay long.
  • Handymen can make several common household repairs for a low fee at a single visit, but warranty companies don’t use them. The only assign electrical work to an electrician and plumbing to a plumber, etc. This means you could have several different contractor visits when a tenant requests repairs. Each vendor requires a 4-hour arrival window for your tenant an average $75 service fee per contractor from you. A handyman usually charges a fee based on what can be done in an hour, will work with your tenant schedule, and many times agree to call-ahead to accommodate a working tenant.
  • Many warranty vendors do not accept credit cards and require the service fee payment upon arrival. I promise you, it’s no fun asking your tenant to front a service fee for you, especially given the level of service they are dealing with along with possible lost wages accommodating that 4-hour arrival window for YOUR repair.
  • You rarely have the same vendor service the same system twice. This results in “blame games”. In 2016 I had one HVAC vendor state a system was low on Freon (never covered under warranty) then the next vendor out stated there was too much Freon in the system which needed to be removed (Freon removal is also not covered). Later that season a third vendor insisted the coils were too damaged to hold Freon at all. Meanwhile, the tenant had an awful summer, hated the owner and us. Thankfully for us, warranty disputes are always for the owner to address with their provider.
  • Owners mistakenly believe they will get free new systems, but system replacements are rare, like winning the lottery.  Expect systems to be repaired repeatedly for years even, inconveniencing tenants over and over with many 4-hour windows and systems that run poorly in between visits, while you rack up services fees, that can surpass what you would have paid for a new system earlier and also made your tenants happy.  

Example: In 2020 a warranty service approved a vendor to replace a stackable washer, but when the SAME vendor arrived to install it, they refused to unstack the dryer to install the new washer. This required another appointment date PLUS a 2nd non-warranty vendor to attend the repair to remove/re-stack the dryer for the appliance provider.  Let that sink in.  The 2nd vendor (2 men) waited hours outside the home for the arrival of the warranty vendor, then unstack/re-stack/remove & dispose of the old washer for an appliance vendor! This added several hundred dollars to the cost.  Couple that with the service fee and yearly cost, and they could have bought a new washer from the start.  It took 3 weeks for what should have taken 1-2 days by landlord/tenant law.  This angers the tenant, is unlawful and does not save owners any money.  The 3 visits for the tenant = 12 hours of their time.

Questions to ask yourself:

  1. Have you paid out more in yearly fees, service fees and exclusionary repairs than you would have spent had you not had the warranty?
  2. Is your tenant happy with your repair services and the vendors that come into their home? (Ask your property manager if you don’t know)
  3. If there is a benefit to all, or just to you?

Owners that have tenants that stay for long periods of time enjoy more stability and make more $$$$. Tenant turnover is costly all by itself. If you have a well-qualified tenant that takes good care of your home, pays rent on time and follows the terms of your lease, it is not wise to torture them with a bad warranty service that likely doesn’t even save you money.

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