Protect Yourself Against Home Defects

Posted by Steve Vincent on Oct 28, 2014, 10:43:22 AM

In Buyers, Home Warranty, American Home Shield, problems after closing

I saw an interesting advertisement this week for American Home Shield, the home warranty company.   The ad was specific to California but has lessons for everyone I think.

American Home Shield is one of the larger Home Warranty companies.  They provide policies to homeowners - usually people just closing on a home - that cover the failure of various systems in the house during a specific period.  Normally you'd get a home warranty if you were buying a resale house that had a few years on it so that you'd have some  protection if the air conditioner failed during the first year.

Last year, AHS spent more than $40 million fulfilling service requests from its California customers.  What is interesting is what the money was spent repairing.  Here's the breakdown:

Appliances -             $13,063,685     32.3%

Plumbing -                $10,414,745    25.7%

Air Conditioning -     $ 8,178,977     20.2%

Heating -                    $ 4,550,396    11.2%

Pool/Spa -                   $ 2,717,506     6.7%

Electrical -                 $  1,286,154      3.1%

Other -                        $    237,548      .58%

I think it is interesting that almost a third of the money spent on claims goes to repair or replace appliances.  Of course some appliances are built in:  dishwashers, disposals, some stoves and so on, but many are not attached to the house and are therefore something to be bargained over during purchase:  refrigerators come to mind.  The point is this:  if you are buying a house including appliances and DON'T plan a kitchen remodel, check them out thoroughly.  Ask for owner's manuals and any existing warranties.  And before you walk away from a home you really want because the seller won't throw in a ten year old refrigerator . . . well, maybe you don't really want that refrigerator at all!

Number two is plumbing.  This is a biggie and makes a Home Warranty an important part of any home purchase.  So many unseen events can compromise plumbing - things even a home inspector won't find - that having a little protection is a good idea.  And plumbing repairs - whether it's digging up a drain clogged by tree roots or dealing with the water heater that fails and floods - can be expensive.  I am struck by the fact that 25% of the money spent on claims was for plumbing issues!

The rest of the list probably doesn't bear much dissection.  There are two things, however:

  • Just 6.7% spent on pools and spas.  The low number is because there are relatively few pools and/or spas and because Home Warranty coverage of these things is usually an option at an additional cost.
  • And just half of one percent spent on items other than the six that preceded 'Other.'

I think, if you are buying a home, you now have six major systems you need to examine closely.  If there's going to be a problem, it is probably going to be here.  The best way to do this is to hire a professional home inspector to go through the home with a fine tooth comb.  Make sure the resulting report covers the big six.

As an aside, there is a great truth about home inspections:  they are very valuable AND they always turn up something.  Don't expect your home inspection to result in a 'clean' report.  There's no such thing.  When you get the report, go through it carefully and rationally.  Most items will be minor.  If there is something major it can become a negotiating point between you and the seller.

Finally, while we've been looking at information from American Home Shield, they are but one of several reputable Home Warranty companies.  I always recommend a warranty on a resale property.  The last thing you want your first year in your dream home is a costly repair bill for an unforeseen problem! Warranties usually cost between $400 - $600 and can cover one to two years.  Often they are extendable.