Property Management Blog

Home Warranties for Landlords – Are They Worth It?

Richey Property Management - Thursday, December 1, 2022

Property Management Blog

Many home buyers will get a home warranty as part of their sale contract and sellers will offer it as a way to assure the buyer that if something breaks during the first year of ownership, the warranty policy will cover the expense and all will be fine.  If you are living in the property, you may be ok dealing with the hassle, time wasted, shoddy vendors, etc, but your tenants won’t be that patient.  In our professional experience, it just doesn’t work this way.  Home warranties are more of a nightmare than a benefit particularly to investors and landlords.

So What Is A Home Warranty and What Does It Include?

A standard home warranty policy will cover major systems in your home - heating, cooling, plumbing, and electrical systems and appliances. Premium policies will add roofs, well systems, pools, lighting fixtures, and sprinkler systems. A one-year home warranty policy will range from $500 to $1000 per year, possibly more depending on the age of your home. After paying a small deductible -in addition to your yearly premium- the repairs or replacement is typically “free”. Who wouldn’t want that?  But make sure you read the details.  It’s not as great as it sounds.

Home Warranty Exclusions

Home warranty policies are full of exclusions and exceptions.  You really have to read carefully to understand what you are getting because it’s in these fine details where they will deny your claim. Warranty companies send out a local vendor who will determine the condition of a repair and determine if the claim will be denied or not.  Repairs are often denied based on the following:

  • Lack of Maintenance
  • Improper Maintenance
  • Improper Installation
  • Pre-Existing Problems

While the policy may cover “plumbing” for example, they will usually not cover the parts that fail most often including showerheads and diverters, faucets, or anything between the foundation and the street. If your pipes freeze, that’s not covered either.

The home warranty company also controls the decision of whether to repair or replace. If they do decide to replace, say the furnace, many policies will have a cap on what they pay and might only pay up to $1,000 for example, towards a replacement leaving the owner to pay the additional $4,000 +.

Home Warranties and Your Tenant

As a landlord, you want to keep your tenant happy and be responsive and attentive and deal with issues in a timely manner.  Tenants expect a home that is well maintained and fully functioning. If a tenant decides to renew their lease, it is usually based on how well the owner responds to their maintenance calls. When a tenant calls in a repair, they expect it to be taken care of as quickly as possible.

Home warranty companies simply aren’t fast to respond and this causes a huge problem for the tenant and for us as the management company.  Our hands are tied because we are not managing this vendor. In our many years of experience, home warranty companies seem to work on their own time. Urgency simply isn’t there because they’re simply the middle man. Once they have a work-order submitted and the deductible paid, they’ll dispatch that information to a local company in the area without regard to their schedule. It could be days before an appointment is set with your tenants and this simply doesn’t sit well with tenants who are facing sweltering summer heats. Because of this, it’s likely you’ll be giving your tenants rent credits and possibly reimbursing any accommodations they needed.  That makes is MORE costly for you as the landlord than if you had just contracted with a local vendor and solved the problem quickly.

We as your property manager do not have control over who does the work. The home warranty company will decide that. They frequently opt for new contractors or the cheapest one. You can easily see how the quality of work will suffer. Tenant satisfaction will below. Overall frustration will be high by the tenant, you and us.

Home warranty policies are one of the biggest landlord rip-offs that we have ever seen. We hate losing control of who is doing the work on your investment and how long it takes to get the work done. Most importantly we hate having to spend your money paying out rent credits because the home warranty company didn’t do the work in a timely manner.

Our goal is to keep your tenant happy and manage your expenses.  Home warranties don’t allow us to really do either one.  Rather than being a problem solver, we become a punching bag getting everyone’s frustrations.  That’s not what anyone wants.

Home Warranty Story

We had been managing a property for a while and the owner insisted on having a home warranty.  Sometimes it wasn’t so bad with minor repairs but one year, the heating system stops working on a Friday night in mid-January.  The tenant had an elderly mother living with her and small children.  The tenant called it into us during the early hours of Saturday morning, and told us you she has two small children and an elderly mother and could we please send someone right away? 

Heat is an emergency and must be dealt with right away. 

We opened a claim right away with the owner’s home warranty company. On Monday morning, finally the tenant receives a call from the vendor the warranty company has assigned. They had one space heater to use but it wasn’t enough and the vendor would not get out to the property until Tuesday. The tenant had to take time off work and wait for the repairman.  Turned out that the vendor had to order a part which wouldn’t be quick and would make an appointment for the following Thursday.  By this time, it would be nearly a week and it still wasn’t fixed.  In the end, we had to put them in a hotel until the heat was repaired and it ended up costing the owner over $1000.  So what was supposed to cost just the $100 deductible, ended up costing over $1200 in hotel cost and created a very unhappy tenant too.  All of which could have been avoided with a local and reliable vendor which we could manage.

The True Cost of Home Warranties

When a warranty company doesn’t make a repair quickly, you many end up putting your tenant in a hotel for an undetermined amount of time.  That is costly.  We’ve seen landlords pay for over a week in a hotel and as result, the cost of the repair was way more than it would have been without a warranty.

Home warranties are designed for owner-occupiers. Owner-occupiers will accept the poor service in return for the potential financial savings, should they have an expensive repair. But, tenants won’t accept poor service, and home warranties can drive your good tenants away fast.  Our advice – don’t get one.