Are home warranties worth it?

Maybe you’ve seen or heard one of the many advertisements out there for home warranty companies — they’re pretty hard to miss. Or, perhaps some of your friends have bought home warranties themselves. That may leave you wondering: “Are home warranties worth the money?”

In this article, we’ll discuss:

• What money expert Clark Howard thinks about home warranties
• What home warranties do and don’t cover
• Home warranty horror stories
• The one case where a home warranty might make sense

Why Clark Howard says home warranties are mostly a waste of money

According one survey, home warranties were a $2.3 billion business as of a few years ago.

Clark thinks that’s 2.3 billion dollars too many.

“It sounds so wonderful,” Clark says. “You pay five or six hundred bucks and supposedly you are buying peace of mind for repairs and replacement of appliances and major mechanical in their house. But when something goes wrong, the warranty company is, like, ‘Who are you? You want us to do what?’”

“Trust me on this: Don’t waste your money on a home warranty. Instead, save your money for when something does break in your home.”

Clark says that in reality, if something goes wrong in your home the warranty companies are brutally difficult to deal with. They require you to use their contractor only. That contractor may or may not come on schedule while you’re suffering in the summer heat with a broken AC unit. And don’t forget that you’ll have a deductible to pay on top of that.

Clark’s word not enough for you?

Consider this: According to the Washington Post, American Home Shield (the country’s largest home warranty company) has been the subject of nearly 11,000 complaints to the Better Business Bureau in the last three years alone.

What home warranties do and don’t cover

In addition to being notoriously hard to work to work with, home warranty companies don’t always make it clear in their advertising what isn’t covered by your warranty.

While most home warranties will generally cover the appliances in your home, the systems in your home (your HVAC unit, for example) or both, there can be some notable exceptions.

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These can include things like:

• Fireplace systems (even if they are your main source of heating)
• Alarm system wiring
• Telephone wiring
• Plumbing lines that are damaged by roots or foreign objects
• Broken or collapsed sewer lines outside your home’s foundation

Here are 11 more things that may not be covered by your home warranty.

Home warranty horror stories

Still not convinced that home warranties are a bad idea?

Team Clark and our Consumer Action Center hear all the time from people who feel like they’ve been taken for a ride by their home warranty company.

For example, Bill C.B. wrote on our Facebook page:

“My toilet has a leak at the base of toilet (I think the wax ring needs to be replaced). And it rocks back and forth when sitting on it. Called for service, technician came out and [they] denied the repair because you can not see the leak on top of the vinyl floor (it is slowly seeping in between the concrete slab and the vinyl flooring). But [they] took my $100 fee.”

And Deborah F.H. said:

“I got one of these with the purchase of a new condo. The bathroom faucet that started leaking 30 days after we moved in? Not covered. The hot water heater that failed? Replaced with a far inferior one! And still cost $600 for ‘whatnots.’ [The company] called me about renewing & I just started laughing.”

The one case where buying a home warranty might make sense

Despite everything you’ve just read, Clark does have one exception to his rule against buying home warranties.

“When you’re selling a home, offer the buyers a used home warranty, even though I think they’re worthless,” he says.

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He points to this Los Angeles Times article, which references a study that says that homes that come with a warranty sell 11 days quicker and for $2,300 more, on average, than those without them.

“If that makes me a hypocrite, so be it,” Clark says. “These warranties are a joke — they seldom pay off — but they’ll pay off for you as a seller.”

Final thought

Although a home warranty may be tempting you with the notion that you’ll have peace of mind in case anything big or expensive in your house breaks, hopefully at this point you know that they’re a bad idea.

Instead, put away some money in a home fix-it fund of your own. You’ll be prepared to take care of any emergency yourself — and not at the mercy of a company who just wants to keep more of your dollars in their pocket.

More stories you might enjoy from Clark.com:

Why you should avoid third-party auto warranties and vehicle service contracts

Have you received an official looking letter in the mail saying your vehicle’s warranty is about to expire — and warning you could face thousands of dollars in repair costs if you don’t purchase a third-party extended warranty?

Here’s what’s going on…

RELATED: Best and worst auto insurance companies

Vehicle service contracts not all they’re cracked up to be

First things first, warranty is a misnomer in this case. What you’re really being peddled is called a “vehicle service contract” (VSC).

The difference between the two is more than just semantics. The Federal Trade Commission notes an extended warranty is included in the purchase price of a vehicle, while a vehicle service contract is not.

Furthermore, the FTC warns about high-pressure sales tactics — including requests for personal financial information and a down payment before any details of the contract are revealed — that are typically associated with the sale of these products.

Not to mention the businesses behind the VSCs often go bust and leave their customers high and dry when repair bills need to be paid, according to an FTC warning.

One member of Team Clark recently received a VSC pitch mailed to his home. We wanted to show you what it looks like so you know what you’re looking at if it arrives in your mailbox, too.

This particular seller of VSCs, Endurance Warranty Services (EWS), creates a sense of urgency by back-dating the letter by a month, saying they’ve tried to reach out to you multiple times and then giving you only a 72-hour deadline to call and get the coverage they’re selling.

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On the reverse side of the letter, there’s a mock invoice that details a litany of fake car repairs that could potentially take a big bite out of your wallet.

The VSC pitch scares you with a big total — $12,914.75 — for repairs that may never have happened to your vehicle and may never happen with proper maintenance.

Before buying any VSC, it’s wise to look at the exclusions and the terms of the contract. We found this sample contract on the EWS website. Buried in the small print, we found the following.

• Most consumers must pay a standard $100 deductible before you get service.
• If you can’t produce every receipt to show that you did the manufacturer’s recommended service on your vehicle, your coverage can be denied.
• If you have a problem with the VSC provider, you have to go through a mandatory arbitration process that usually doesn’t work out in the consumer’s favor.

As always, the devil is in the details!

And here’s something else that’s strange…as the FTC noted, there’s no disclosure anywhere on either the sample contract or in the pitch letter about how much a policy actually costs. EWS is even opaque about that on the coverage page of their website.

So apparently the only way to get a quote is to call or request a quote online. But by handing over your phone number and email, you open yourself to the high-pressure sales tactics the FTC says are common in this industry.

Who should and shouldn’t buy a warranty?

Of course, there’s a larger issue here — and it’s about whether or not you should buy an extended warranty on any vehicle…period.

On that count, money expert Clark Howard’s advice can be boiled down to several key takeaways:

• If you can afford the potential cost of car repairs, you should never buy an extended warranty.
• If, however, you can’t afford the cost of potential repairs, you may want to consider buying the vehicle manufacturer’s warranty.
• Never buy an extended auto warranty from a third party. If trouble happens, the manufacturer is probably going to be there to stand behind its warranty. A third-party company may not.

Another point Clark has always made is that if you stick to Consumer Reports’ annual recommended list of vehicles, which is published every April, you shouldn’t have to buy an extended warranty at all.

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That’s because the magazine does the hard work of vetting out the bad cars you should avoid buying in the first place. So the odds are that their recommended vehicles won’t have severe problems over time, thus negating the need for an extended warranty in the first place.

Here are some other ways to avoid having to buy a third-party warranty

Get regularly scheduled maintenance done

It’s the stuff you’ve heard all your life: Get your oil changed regularly — for some vehicles that means every 3,000 miles and for others it may mean every 7,500 miles or more. Check and maintain proper tire pressure and have your tires rotated every 8,000 miles. Check your vehicle fluids regularly and top them off when necessary. Change your air filters regularly.

Taking these simple steps can prevent larger auto problems down the road!

Get free car repairs 

Technical service bulletins (TSBs) are bulletins issued by vehicle manufacturers to dealerships when they note a systemic problem with one of their vehicles. TSBs aren’t quite recalls, they’re more like production “oops” that are being acknowledged. Thousands of these TSBs are issued every year.

But here’s the thing about TSBs: The dealers will often fix them for free if the particular issue noted in a TSB impacts your vehicle.

You can see if there are any active TSBs for your vehicle by make, model and year at AutoSafety.org and at ALLDATAdiy.com.  Meanwhile, SaferCar.gov is another good resource to know about for TSBs.

More auto stories on Clark.com