Should I Buy a Residential Service Contract for my Dallas/Fort Worth Home?

An experienced Realtor® will always ask you to consider buying a residential service contract, or home warranty when you purchase a home, especially if the home is older and does not include warranties on existing appliances. It goes without saying that buying a home insurance policy at the time of purchase is a smart decision (and also required in most cases), add to it a residential service contract and you’ve got yourself protection from just about any problem, right?

Residential Service Contract: What Is It?

A residential service contract is a policy that covers replacements and repairs on older appliances and home systems for residential properties. Typically these policies will be good for 1 year, and can be renewed at the end of the policy term. Given its limited period of coverage, many homeowners won’t renew their residential service contract, but in most cases, this is a mistake. Most Dallas/Fort Worth Realtors will recommend reading the policy and finding a residential service contract that the new owners are happy with, and then renewing the policy every year.

A residential service contract, when understood, can be the easiest way to save the cost of repair or replacement in the event of a costly appliance failure.

How is a residential service contract different from home insurance?

Home insurance covers the damages caused by fire, vandalism, property crimes, water damages and other factors that inflict irreversible damage to the structure or personal possessions of the homeowner. These damages are largely due to an immediate and unforeseen problem, such as a water pipe bursting, or storm damage. A residential service contract on the other hand covers specific home appliances and systems, such as air conditioning units or pool equipment.

It’s a contract between the warranty company and homeowner agreeing to repair appliances at a rebated cost. Most home warranties will include coverage for:

  • Plumbing systems (hot water heater, dishwasher, garbage disposal)
  • Air conditioning units and systems
  • Electrical components and systems
  • Furnace or heating system (if separate from air conditioning system)

Additional appliances like refrigerators, washers and dryers and swimming pool systems may also be covered, or added to the contract at an additional cost. When a warranty claim is filed, the home warranty company sends in a service repair specialist who determines if the appliance needs replacement, or can be repaired. The homeowner will pay a service fee for the inspection of the appliance, and if covered under the terms of the policy, the repair technician will work with the homeowner and home warranty company to make sure the repairs are completed.

Cost of residential service contract: Is it worth it?

The average cost of a residential service contract is a few hundred dollars, which can either be paid in full or installments depending on the contract and home warranty company. The overall cost does not vary greatly among the home warranty companies in Dallas/Fort Worth. There are four main variables that dictate the overall cost of a residential service contract:

  1. Annual Premium: The cost varies from $400-$1000 depending on the coverage and the company.
  2. Technician’s fees: A small amount is paid to the technician who is sent over to assess and repair the damage.
  3. Variations: The cost remains unaltered with the exception of new home construction. Costs increase on homes larger than 5,000 square feet.
  4. Deductible: Every time a claim is submitted a deductible of around $50 has to be paid as a Service Charge.

To determine the value of a warranty, its benefits need to be considered with any potential out-of-pocket costs for homeowners.

Benefits of residential service contract:

The most obvious benefits to having an active residential service contract include:
  • Monthly budget is stable since the cost for unexpected expenses in the form of appliance repair is largely covered (with the exception of deductibles).
  • In case of faulty working of appliances or plumbing system, a service technician is sent in for evaluation, immediately.
  • Based on the terms and coverage outlined in your policy, the faulty system is either repaired or replaced.
  • The value of property increases when the home carries a warranty, and can negotiated for the seller to pay.
  • The annual renewal provides on-going coverage to all home appliances.
  • In case of replacement of faulty appliances, the company will order and replace it with something of equal value.

A few drawbacks to residential service contracts:

Although the arrangement seems perfect, in reality, it is not always as clear as one might expect. A few drawbacks are:

  • Replacement of worn or damaged appliance is not always guaranteed. This is why it is incredibly important to fully read and understand any residential service contract policy.
  • Damage caused by carelessness is not covered. If an appliance is blatantly neglected for extended periods of time, the home warranty company may deny coverage.
  • The grounds for claim denial vary depending on the contract.
  • A service charge is to be with every call made. One issue is addressed per call. If you have more than one issue, separate claims need to be made, and separate service charges will be required.

The verdict: Weighing the benefits and drawbacks of residential service contracts, one could argue it’s an additional expense that can be avoided if you have brand new appliances (which are usually covered for at least a year by the manufacturer). Considering it can often be negotiated into the closing contract at the seller’s expense, it’s always a good long-term investment.

Looking for a great Flower Mound real estate agent to help you sell your Dallas/Fort Worth home? Give me a call at (972) 974-1375 and let’s talk. Now’s a great time for sellers in North Texas.