How Does A Home Warranty Really Work?

Home warranties have mostly evolved into an elaborate system of cheating for your money. It is hard for even me to believe that it was ever intended to be what it has evolved into. Profitability of home warranty companies at historic highs clearly demonstrate they are nothing more than money trees to enrich those who you think are going to do you a favor at some point in time in the future. The future comes, the premiums are paid, the truth is far from reality. The video below is over 40 minutes long, but for such a complicated subject it has to be, to get the full point across. The content of the video is different from the content of this blog post.

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Part of the problem is that the fees paid for various coverage haven’t kept up with inflation. Certainly, there are a myriad of ways in which an appliance or fixture fails within the home, not to mention a myriad of ways to fix, repair and in some cases replace the appliance or fixture. The problem is that time tends to cook the goose more often than not, and coverage that you thought was there was never there to begin with.

Home Warranty White Lies

However, the home warranty advertisements used to attract new home owners paint the coverage as something it is not and hide the contract with all the loop holes until after you send in payment, fully relying on you to take the step to actually read a contract that is likely filled with lawyer speak a week or longer from when you send in payment for your premium. I have embedded a video above to demonstrate what a home warranty company sent me. (The video is different from the content of this blog post, the video is not scripted I go thru various aspects of the brochure and prove things in a non scripted manner.) The video is over 40 minutes long as this subject is quite complex. I think the video does a good job of showing why home warranties are not what they appear to be and they have to be this way in order to sell the policies.

I have been in the HVAC business for over 22 years. I have worked for companies that worked for home warranty companies, so my knowledge of their ways is based on my experience. Currently (2017) I DO NOT do work for any home warranty company because the methods / cost / payment methods for work involved do not measure up to reality. I can help you outside the realm of a home warranty. (Katy, Texas Area) I can repair your system / install new equipment if that’s what you decide with guarantees and warranties that have nothing to do with a home warranty. If you’re so inclined to read further I am going to try to explain to you how the home warranty company operates behind the scenes.

The home warranty you choose is it’s own separate entity (typically) just like any contractor they may send you. The contractor is merely looking for work and looking to get paid for that work. The home warranty company has gotten the work by offering flashy and mostly gimmicky services that appear like a steal (service work, parts and labor for nothing, except a small service fee). So there are plenty of people that are persuaded because of this… like a bug to a bug zapper. Bzzzt!

The Advantage Of A Home Warranty

The only advantage a home warranty company offers to a contractor is that the contractor is given a steady flow of customers without having to waste money on costly advertising. But the only way the contractor makes any real money is to find a deniable clause within the contract you were deceived in taking out from brochures that typically says: ‘Your appliance is covered regardless of labor or parts cost. If your appliance can’t be repaired, we’ll replace it.” — watch the video, it’s there.

Home Warranty Scam

Something for nothing is a scam, no big surprise there. No HVAC company on this planet would last very long putting in HVAC systems for less than $200, while the home warranty company rakes in millions of dollars in premiums and pays next to nothing in claims. If you don’t believe this is how it works, watch the video I’ve embedded above. Where does the home warranty profits come from? CEO pay? Home Warranty worker pay? They can afford to buy out other home warranty companies too? Yeah, think about that for a good hard minute or two.

You think the home warranty contractor is coming to fix your system without any fanfare, because you… like most people didn’t read the lawyer speak contract that was sent to you after you sent your money in. Imagine the horror when you find out this is not the case. Yes, you are probably at this blog right now because you are at a turning point in your life. It is a good possibility none of this is your fault. Your home may have been sold to you with a home warranty. It happens everyday a home is sold in Texas. Some home owners probably never use it, this is part of where the big profit of a home warranty comes from… unused policies.

When it comes to the home warranty contractor denying a claim the home warranty company tends to be fine with it because they make money too by paying less claims except the flat rate the contractor receives. Certainly you could request another contractor, but there is nothing another contractor is going to do if they can’t repair a system for $50 or less. Why would they take a loss the other contractor was not willing to take?

How A Home Warranty Works

You see how the home warranty works is that the contractor sets up a flat repair rate with the home warranty company. In most cases it’s around $130 to $150 per call plus the contractor keeps the service fee that you pay. So in most cases the contractor is supposed to fix your HVAC system for around $190 and rarely over $230 no matter what the parts cost or what is wrong with your system except routine maintenance. Currently if the unit needs Freon they can charge you for that too. If you think you will get away with zero costs this day and age with a home warranty forget it. If your system requires a large part like a new coil, the contractor charges for code requirements, duct work modification and Freon to name a few. The home warranty company will typically supply the new coil. Realize without the code requirements, duct work and Freon fees the contractor would be replacing your coil for the same $190 to $230 what ever their agreement is with the home warranty company. No HVAC company could work this cheap and stay in business.

Imagine you call the home warranty company they send the call to contractor xyz. You typically have no say who they send you. Sure you might be able to request a different one but with flat rate of $190 or so you aren’t getting nothing any better by asking for a different contractor. The different contractor is likely in the same boat. They have to be, because often times these contractors are pitted against one another by the home warranty company.

Realize that flat rate includes drive time, parts (not counting refrigerant). If the part costs $250 or more, the HVAC company is expected to eat that loss, not the home warranty company. Talk about having your cake and eating it too. So what would a company do in this situation? Find a way to deny the repair… rust, pre-existing condition, mismatched system, improperly installed, lack of maintenance, building code violations and the list goes on and on. The company the home warranty sends you either turns the call into a profitable endeavor for themselves or you receive a big fat denial all the while you sit and stew in the heat.

You could ask for a second opinion in this case, but it would require you to sit for another day maybe as long as a week potentially typically in the dead heat of summer.

You see it’s a numbers game with the home warranty company and they pit one contractor against other contractors… not in ways that benefit you… only in ways that benefit the home warranty company.

The home warranty company is in business to collect premiums. They are not in business of paying out claims. So they pit the contractors against one another… the cheaper contractor wins out. The cheaper that contractor is to the home warranty company the more calls the cheaper contractor will get. The cheaper contractor is cheaper for the home warranty company… not cheaper for you. Hopefully you now clearly see this charade for what it is.

Home Warranty Insurance

A contractor is cheaper not by processing claims and installing new equipment… Oh no get that thought out of your head. It’s an elaborate shell game. You are almost guaranteed to lose at this game. If you don’t believe me scroll up and watch the entire video I embedded to this blog post. People often times call a home warranty insurance against the unexpected things that might break in your home.

I have some news for you. The home warranty companies in Texas are NOT offering you a contract of insurance. They say this right on the application form. They have to, it’s the law of the land. There you have it, home warranties are not insurance in the state of Texas. This is very important watch the video and pay attention when this detail is discussed. It’s in the video embedded toward the top of this blog post.

High Part Costs Lead To Home Warranty Denials

Due to inflation and changing product cycles of HVAC equipment repair part costs continue to escalate, but yet the price of home warranties for the most part remain quite cheap. You can as demonstrated in the video acquire a home warranty (bare bones coverage) for $350. This isn’t going to cover much and it’s unlikely it will do you much good, based on the reviews I went over in the video above. This is why your Home Warranty, no matter what name is behind it will not live up to your expectations for long. The longer it takes for you to realize this the more money you will have wasted on premiums paid for nothing. It is far wiser to put this money into a separate account, add to it annually and then hire your own contractor to repair things and pay for these things from the separate account. This will give you far more control in who you choose to let into your home.

Watch the video, the proof exposed speaks volumes. I couldn’t put it any simpler terms than this. If you have a denial that you think is in error and bring this to the attention of your home warranty company, do not be surprised if they come back with: “We don’t cover this or that, if you had read your contract you would know this.”

What they don’t tell you is: “LOL. We fooled you. We got your money… too bad for you.”

I hope you stumbled across this blog post and video before making a serious mistake. However, I realize we are all capable of making mistakes. I won’t hold it against you, I promise. I am here on this planet to help you after all, regardless how many mistakes you make along the way. The idea here is that you learn from them. I can’t help you if you are unwilling to take my hand and listen to my advice. People tend to learn the most by experience. I am no different in this regard. I have over 22 years experience in HVAC systems for your home. How long do you have to make the same mistakes I’ve made in the past?

I don’t work for any home warranty company. I work for you. I will give you your best options to put you on the best course for success. You merely ask questions and then pick the option that works best for you. If something goes wrong you have a skilled person to call. You will know I will be coming to your home. You know I am skilled in what I do, You know I will show up on time, You know that I work everyday. You know that I will not bash your equipment brand. No, a real pro would never do that. (I have fixed every brand on this planet at one point or another in my illustrious career, it is pointless to bash brands when they all break.)

Thank you for visiting with me today. I hope your day is comfortable.

About the author of this blog:
My name is Ray Austin. I am the owner and operator of Austin Air Companie, a HVAC Service Company serving Katy, Texas | Cypress, Texas | Richmond, Texas and some surrounding areas. I am a Texas Licensed HVAC Contractor with over 22 years experience in Air Conditioning and Heating Systems. I hold an AOS degree in HVAC/R, EPA universally certified to handle any refrigerant and NATE certified in HVAC installations and repairs.

Austin Air Companie
832.475.6895
“Your home comfort from A to Z”
Air Conditioning | Controls | Heating | Zoning

For more information you can always visit me on my main website @
www.austinairco.com

Better Stuff. Done Right. On Time. Guaranteed.

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