Thread: Do Home Warranties replace Home Inspection?

After reading the article linked to below I was wondering if you have had any Agents or Clients suggest a home warranty can replace a Inspection and if this has happened, what did you reply?

What would you say if this brought up?

Iv'e also noticed more and more foreclosures including warranties provided by the Banks.

More turn to home warranties to entice wary buyers
For home buyers, the last thing they want after their big investment is a big repair bill, so offering home warranties is now a key to sales.

More turn to home warranties to entice wary buyers | The Tennessean | tennessean.com

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I've never heard of this being suggested and I'm not aware of anybody who has done it.

no they can never replace a real home inspection.
anyone who thinks they could must be a , must think they are, A REALTOR

... you should point out to anyone dreaming of forgoing an inspection: that 1) a warranty does not cover everything that could be wrong with the house (foundation, structure, roof, windows, improperly installed/modified systems...), 2) a warranty will NOT cover items that have broken down due to neglect or lack of maintenance (A/C stops cooling and the tech finds dirty coils... sorry the warranty won't cover for lack of maintenance, etc., etc.); and 3) there are caps/limitations on coverage.

I have heard this on a few occasions and from real estate agents.

I can tell you that a Home Warranty is probably going to be harder to make a claim on without a Home Inspection. The reason is that many of the claims are denied "because it was a pre-existing condition".

The Home inspection would give some back-up to homeowners if the system/unit that failed was shown to be working at the time of the purchase (date of inspection)
As a side note: there is a company that writes home warranties tied directly to the inspection if the inspector is using "HomeGuage" software. This cuts out the pre-existing excuse from the warranty company. (at least that is what they say)

I would not doubt that many Real Estate Agents are misinformed and tell their clients that the home inspection is unnecessary with a Home Warranty. (I wonder if this had something to do with the law passed a few years ago that put a stop to Agents getting a kickback for selling warrenties...?

Home Inspections and Home Warranties are Apples and Grapefruits. Home warranties don't cover many things that a Home Inspection would turn up and also they have very low monetary coverage. A $100,000 structural problem that would have been found with an inspection is not going to be covered...welll maybe up to a limit of $5,000-$10,000.

You have to also wonder if some agents may be saying this to avoid the "deal breakers" that we sometimes find???

Offering Home Warranties has been pretty standard around here. The comment I often hear from Realtors is "Don't worry, the home warranty will fix that" when I point out a failing water heater or the like. At that point I usually tell the client and the Realtor "Maybe, maybe not." "Home warranty companies are in business to make money just like everyone else. My experience is that they will often attempt to weasel and say it's not to code or some other reason to change the client more money". They will also try to throw the Home Inspector under the buss. Watch your back.

Mr(s) future homeowner

Home warranties may be beneficial to some buyers, but they are not the same as a home inspection.

A home inspection identifies needed repairs, which gives you leverage to negotiate with the buyer to make repairs or reduce the selling price.
Home warranties do not pay for repairs if the repair was needed at the time of purchase.
When an item needs to be replaced, for example a water heater. The warranty company will prorate what they pay based on the age of the water heater, not full replacement cost for a new water heater.
Lets say the water heater is 12 years old
The average age of water heater when replaced is 15 years.
The cost to replace the water heater is $600
12/15= 80% of the life of the water heater is gone
$600 replacement cost - 80% of it useful life = $120 remaining value
$120 remaining value, less the deductible of $100 = $20
The insurance company gives you $20 to replace the water heater.
You are out $580 for the water heater. Plus however much you paid for the home warranty.
Of course the deductible is for each claim, not yearly.
In short, home warranties are insurance. Insurance companies do not make money by paying claims if they can find a way to avoid it.

The internet is full of consumer complaints. This has happened to such an extent that the warranty companies have several of their own "review" sites to combats the black eyes they get. Several months ago a Realtor ask me what was the best warranty company. I told her I would get back to her and did some research. What I found out was they all had reputations for declining to cover items that were clearly listed as being covered. It was easy for them to say that it was a pre-existing issue because the consumer had little leverage to argue otherwise especially when the consumer had to use the warranty companies preferred contractor. The best I could come up with the company with the least complaints. Here is an article on warranty companies Angie's List: Home warranty companies top consumer complaint list in 2011

For a Realtor to say to use a warranty over an inspection is ludicrous. Obviously they are just putting their head in the sand. Just for fun find out who the company is and google them with the term "complaints" . Ignore the Home warranty review sites, they are owned by the warranty companies.


Anacortes, Wa. Home Inspections by Pacific Crest Inspections in Skagit, Snohomish, Whatcom and Island Counties, Washington.

“It’s almost as much a part of the real estate transaction as the home inspection,” she says.

Bob, the last line says it all. They are correct, its almost as important but nothing will substitute for a good home inspection.

We get calls from time to time after an inspection from a ticked off client who says the warranty compnay says the condition was pre-existing and they will not cover the repair. Our reply often sounds like this: " Did the warranty company have all of the items they supposedly cover under their warranty inspected before they wrote the warranty? Your report documents exactly what condition the (let's say) water heater was in at the time of the inspection and it says here that the water heater functioned as it was intended to." There have also been times where we have gone to bat for our clients when the warranty company is denying a claim and have supplied a letter confirming that at the time of the inspection the appliance was operational etc.

In my opinion the warranties are seldom clear cut and non-adversarial when a client makes a claim.

Bill Barnes
Seagate Inspections, Inc.

I like the responses so far.

Absolutely, absolutely NOT!! Besides home inspections, part of my firm's work is structural inspections for home warranty companies. I have found out that most buyers do not read those warranties--and likely neither do the real estate agents, particularly those who think that a warranty takes the place of a living, breathing expert. At least structurally, a home has to be in pretty obvious distress for the warranty to kick in. BUT, to understand that fact, a person needs to really read into the warranty language. Just as an example, a typical warranty will state that a foundation wall crack must be 1/4" in width or displacement. Not bad, huh--untill a person sees that is in 12 inches. That means a crack must be 2 inches wide or displaced in a typical 8 foot wall. Other requirements are similar.

One thing should always be kept in mind about warranties. They are a form of insurance, and like insurance companies, the warranty companies are in the business to make money and that means that the less money they pay out, the more money they make. Just like insurance companies, warranty companies are not there to be a friend--I don't care what kind of hands they have. I recommend that if you want ammunition against the ignorance, get a warranty and read it with a lawyer's sharklike eyes. You can be sure that any agent who has stated that a warranty can replace a home inspection has not read one.

I believe that a well seasoned H.I. will have more experience than a real estate agent with issues such as warranties. The agents often present the sales pitch, we see the end result. I have frequently pointed out potential outcomes that agents had not personally experienced or expected. A good agent will appreciate the inspector's input. A few agents will be defensive in which case it becomes even more beneficial if you enlighten the client.

Originally Posted by wayne soper

no they can never replace a real home inspection.
anyone who thinks they could must be a , must think they are, A REALTOR

10/4..

A really good agent will also realize that a detailed home inspection can protect his/her butt.

Originally Posted by Matthew Klein

A really good agent will also realize that a detailed home inspection can protect his/her butt.

That'al be the day!

warranties are for failures. Inspections hopefully discover impending failures when you take action at less cost with less distruption. I'm sure they'll tout the warranty claiming it will pay for the costs but I've never heard of one of those warranties paying anything close to the real cost. Typically, they want to control who the hack is that does the remediation, too.

Not worth the paper they're written on.
Common warranty company denial; “your home inspector should have caught that.”
Claim denied!

Originally Posted by Jerry McCarthy

Not worth the paper they're written on.
Common warranty company denial; “your home inspector should have caught that.”
Claim denied!

Wow..Figured I was the only one who thought that. .Jerry you are 100% correct..

Sorry to take a contrarian viewpoint but here are my experiences. I have bought, lived in, renovated and sold about 20 homes (Not including those I have not taken residence in). I have had a Home Warranty on virtually each and every property - as far as I can remember - which was usually paid for either by the seller or one of the realtors. I have had cause to utilize the policy on a few occasions when appliances, included in the sale, have gone awry. I duly paid my deductable (typically $40 - $60) and the problems were fixed.

On one occasion when the built-in oven went out (six months after the sale) the service guys were at my home for at least four hours, pulled the oven out of the cabinet, stripped it down, identified the problem, located a part at a supply house, made the trip to obtain it, installed it and the oven continued working when I sold the house 18 mos later (don't know what happened since). I probably would have preferred a new oven but the problem was repairable so it was repaired. That experience may be an anomaly but on other occasions (Condensor unit - bad motor and a Dishwasher leak) the problems were fixed under warranty. As I recall the DW could not be repaired successfully (older Whirlpool unit leaking from a seal at the motor shaft) and the service company gave me $$$ toward a new unit, which worked out okay for me.

Sure the warranty companies are in the biz of making money and rely on a very few repairs required over the number of policies sold in order to make a profit. If they can find an exclusion to avoid a pay out, they will. Read the fine print. Nevertheless, the Warranty does give a new owner - especially someone inexperienced in owning a home - some peace of mind, but it's certainly not absolute. The suggestion that a thorough home inspection will detect an unforseen appliance break-down, as some seem to infer, six months or even one day after escrow closes is ludicrous. Any inspector who would positively guaranty that any appliance would still be working correctly the minute he/she walks off the property is, IMO, foolish. We typically refer to 'expected life' of appliances, roofing materials etc. but stuff happens. The premis that a valid claim would be denied, based on a Home Inspection perhaps many months prior, is unlikely to hold water in court. It is a breach of fiduciary duty to do so. That's akin to saying your auto ins. co would deny a claim because you should have known you were going to be involved in a traffic accident sometime in the future.

On the other hand, if I had to pay for a Home Warranty, I doubt I would have one being that I could probably fix many of the covered items myself - thus saving the cost of the policy (typically $350 - $600) and deductable. Actually on my last home purchase my realtor offered to pay for a Home Warranty - I declined the offer and elected to have the money deducted from her fee (which never happened! Slipped through the crack I guess). I do agree with others that a Home Warranty does not/should not take the place of an Inspection for a variety of reasons but they do afford some level of protection under some individual circumstances.

Thanks Ian
I agree a Home warranty is not a bad thing.

IMO a warranty is just another level of protection but should never replace a Home Inspection as we are there to find issues pre existing or not.

I personally go over far more systems and components than any Insurance will cover and issues need to be taken care of before a disaster occurs by the seller or found out before the property exchanges hands.

Even the best Insurance in your wildest fantasy only covers you with "deductible" subtracted from your families savings, after something bad happens.

In this state, a home warranty only covers components that are functioning properly at the time of close and do not cover preexisting conditions or defect, nor failure due to neglect or lack of reasonable maintenance.That excludes many issues found in most bank owned or short sale properties Additionally, most warranties do not cover water in the crawlspace or issues resulting from water in the crawlspace. The warranty will get you service on appliances, water heater and furnace if functioning and in good working order at time of close, but offer little in the way of the roof, foundation and framing, or the electrical system. A word to the wise should suffice.

Home warranty companies beat up their contractors as bad as HMO's beat up doctors. They dictate how much they will pay the contractor for a particular job period and, from what I hear, it's not very much. The end result is the contractor trying their best to "sell" add-ons or out right cheating clients to make up for it (same as in the medical profession IMHO).

A good example is replacing a defective water heater. The warranty company pays for the heater as promised and that's fine. However, they do not pay for the city permit for replacement nor do they pay for piping, valves or any moisture damage that may have occurred under the heater or in the wall from water leaks, if any. Nor do they pay to bring the new installation up to current code levels.

The common ploy by the plumber is to charge for the permit but never get one. They can also inflate valve and piping costs. Add to that repairs to flooring or heater stand base and suddenly the "free" water heater can end up costing more than if the client had not had a warranty in the first place but rather hired their own plumber at the time of failure.

It is true that it's the clients responsibility to read and understand the warranty contract, especially what is and what is not covered, but how many clients you have run across even KNOW a little detail like a permit is supposed to be pulled to change out a heater? They most likely don't give a thought to extraneous damage to floor or wall from moisture, old or bad valves or piping, earth quake strapping and on and on, at the time of reading the contract. Isn't that the notion that a home inspection is even based on? We protect the buyer from problems they do not or could not know about in the first place. It's the same with warranties. They read the contract but have little to no knowledge of what it all REALLY entails.

I believe that those who sell the warranties are actually doing a dis-service to their clients and in the end the bad PR created when a scenario like the broken water heater comes about, may come back to bite them!

Other than that, I have no opinion on the subject.

Warranty man to the warranty owner.

Ah ha. This is why the dishwasher is not working!!!!! It was never hooked up under the sink.

True story. Months after the inspection.

The buyers sent me an email stating "why the dishwasher stopped working" months later (buyer).

"Ah Huh. It was never hooked up under the sink"(warranty man)

Yes. I state again. True story.

Answer is no. Warranties do not replace home inspections.

Another favorite.

My Heat does not work or the AC on the second floor. I called the warranty company and they found that the system was never hooked up to the heat pump outside. It need the "system evacuated and this and that and this and that.

$875.00

I called an HVAC guy to go take a look at it. (it was working when I was there by the way). He found that it looked like the wires going to the heat pump were ripped out. He hooked them back into the unit. System works great.

$110.00

I showed the buyer the pictures once again for a reminder of all the goods stacked up around the unit from the past owner. They obviously tripped over them and ripped them out and more than likely never new it.

Home warranties do not replace Home Inspections.

Bump! Throwing this one back to the top again, because after reading every word of this thread, I am pleasantly surprised by the level of knowledge many of you have about home warranties sometimes referred to as service contracts.

And actually, you're all right. There are several companies out there that not only beat up their contractors but encourage upcharging to clients. There are some that promote the idea that "this issue isn't covered because the inspector missed it.".

And there are really good warranty companies, and I hope mine is included in the short list.

Yes, we demand great rates from contractors but we give them a lot of work and show them how to turn our clients into great referral sources when they deliver great service- and we penalize them for selling to our clients and we fire them immediately as soon as they say an inspector missed something.

Warranties are certainly no substitution for a good home inspection- which I think is the consensus of the group. In fact, we don't even want to write a warranty on a house where the buyer didn't get an inspection ... It cost us way too much!

Originally Posted by Nathan Thornberry

Bump! Throwing this one back to the top again, because after reading every word of this thread, I am pleasantly surprised by the level of knowledge many of you have about home warranties sometimes referred to as service contracts.

And actually, you're all right. There are several companies out there that not only beat up their contractors but encourage upcharging to clients. There are some that promote the idea that "this issue isn't covered because the inspector missed it.".

And there are really good warranty companies, and I hope mine is included in the short list.


Warranties are certainly no substitution for a good home inspection- which I think is the consensus of the group. In fact, we don't even want to write a warranty on a house where the buyer didn't get an inspection ... It cost us way too much!

Nathan.. Quick question, as a home warranty company what do you require/ recommend an inspector includes on an inspection report.
Serial and Model #s Sizes ect?

That's an interesting question for many reasons. Purely for your interest as a home inspector, I might suggest model numbers. It doesn't happen often, but every once in awhile a seller will change out a dishwasher on their way out the door with one that has a problem, and you might get blamed. I've seen it happen a few times since we started offering RecallChek, and we've been told it helped the inspector out of an issue because he just knew that something wasn't right and sure enough the unit had been swapped. I don't know that the model number just for the sake of being a model number is useful information to a buyer,

BUT

If an agent is asking for that information, they're probably wanting it to qualify for an admin fee from the warranty company under some misguided attempt to comply with the HUD interpretive ruling on fees in 2009 where there was a footnote that says something to the effect of agents can (may be able to) receive compensation for taking down model numbers- if it's necessary for the warranty and separate from what they do. Warranty companies- including mine- have never used those model numbers for any substantive purpose so they only think they're complying.

But hey, if the agent asks you for a favor by taking down the model numbers and you get a few more referrals out of it, that's good business!

Originally Posted by Nathan Thornberry

That's an interesting question for many reasons. Purely for your interest as a home inspector, I might suggest model numbers. It doesn't happen often, but every once in awhile a seller will change out a dishwasher on their way out the door with one that has a problem, and you might get blamed. I've seen it happen a few times since we started offering RecallChek, and we've been told it helped the inspector out of an issue because he just knew that something wasn't right and sure enough the unit had been swapped. I don't know that the model number just for the sake of being a model number is useful information to a buyer,

BUT

If an agent is asking for that information, they're probably wanting it to qualify for an admin fee from the warranty company under some misguided attempt to comply with the HUD interpretive ruling on fees in 2009 where there was a footnote that says something to the effect of agents can (may be able to) receive compensation for taking down model numbers- if it's necessary for the warranty and separate from what they do. Warranty companies- including mine- have never used those model numbers for any substantive purpose so they only think they're complying.

But hey, if the agent asks you for a favor by taking down the model numbers and you get a few more referrals out of it, that's good business!

Hm, If the AGENT asks you to take down some model number that is good business ans will get you more referrals.

Why would the agent be asking you to do anything for them.

Just saying

The simple answer is that they don't want to do it themselves. It's a pain, it's one more trip to the property, they may not know where model numbers are...any number of reasons.

You may belong to the camp of inspectors that don't like the way agents operate, and I totally understand where you're coming from when it comes to some of them, but I personally get calls for favors from agents all the time. Don't mind it, they give me a lot of warranty orders.

I hope you can find that thing, that you can live with, that you can do for agents that will show them you're here to help- because we all are here to help the client, assist in getting the transaction to close, and make money doing it honestly.