Why a Home Warranty Can Cost You Your Dream Tenant

For many years now, buyers of residential property have expected the seller to provide a home warranty in the purchase transaction. This practice is actually very good when purchasing a re-sale property. New construction comes with a builder warranty that the builder will rectify any issues for longer than a typical home warranty by an insurance company will offer. 

When buying a re-sale property, a home inspection can only show you so much. However, it's murphy's law that can bite you. This is when the home warranty comes in handy. If a major system fails, then you have that insurance policy. 

Here's where it gets tricky. Let's say you buy a property and decide to rent it out. Or, you move out of your primary residence and decide that this will be a good income property for you. Since it's not really known how the tenants are going to treat the home and it's systems, you decide to get a home warranty. 

The tenants move in, and you get a maintenance request. You call the home warranty and they dispatch out some company you've never heard of. But, they are going to call your tenant directly to schedule the service call. 

The problem here is that you have no idea who this company is, if the technician is a registered sex-offender, etc... And guess who's responsible if something happens to the tenant...... YOU! 

Now, let's assume the tech is not an ex-con. What commonly happens is that your service call is low priority to them because they're working at a discount for the home warranty company. Commonly, technicians will work for home warranty companies to fill in slow periods, commonly known as "fill-work." 

So who really suffers here? Your Tenant! It is known that a happy tenant will stay longer in a rental property and put up with rent increases when maintenance is promptly taken care of. If it's a pain for the tenant to get work done when requested, they are more likely to move at the end of the lease or at the first sign of a rent increase. 

If you're using a property manager to take care of your property, it's fairly common for them to have relationships with contractors who charge a fair wage to fix your problems. While it may cost a little more per trip to have a private contractor go out there, it will likely keep your tenant much happier than the alternative. 

Speaking of math, let's look at the big picture. If a home warranty cost you $400 annually, plus a $65+ deductible per call, does the math really work? Let's assume you're going to have 2 service calls on average per year. That's $530 annually you're paying out by having a home warranty. Unless your house is falling apart, or you need to replace the A/C, are you spending that much anyway? Something to think about....

In short, a home warranty is not always in the homeowners best interest. Unless we have a problematic property, we always encourage our clients to drop home warranty policies for rental properties. They have continued to prove to be useless in the long run, and frankly, we're all about the big picture. 

Lee Arnold is a California BRE Licensed Broker in Southern California. Whether you're looking to buy, sell, or lease real estate, Lee has 15 years of experience in this field. Lee is available for speaking engagements as consulting opportunities. To contact Lee Arnold: www.benchmarksocal.com.  

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