Home Warranty Regulation

By Malea Ritz | Affiliate Disclosure

Home warranties are often misunderstood, making them a source of various lawsuits. For this reason, they’re becoming the focus of a great number of regulatory efforts across the country. In this article, you’ll learn about the basics behind home warranty regulation and how to protect yourself and your appliances from any surprises down the line.

The basics of home warranty regulation

Home warranties were first introduced to U.S. homeowners in the 1970s when the real estate market was booming and people sought to protect their pricey home appliance purchases. American Home Shield emerged as the first home warranty provider in the budding business, and thus an industry was born. The next bridge that needed to be crossed was finding a way to oversee these service companies.

Home warranties are regulated on a federal and state level, meaning the federal government typically sets the standard and states then decide how to enforce within their jurisdiction. There’s no standardized home warranty contract, so it really varies from state to state. If a service company deems an appliance has not been maintained properly, it may not be covered under the contract. Reading the fine print is key in knowing what the terms and limitations include.

Home warranty regulation vs. insurance company regulation

Although home warranties share some of the basic principles as insurance in the sense of paying a monthly premium for coverage, the difference is that unlike insurance companies, home warranty providers aren’t regulated by federal law.

Insurance companies are regulated by the National Association of Insurance Commissioners, the Federal Insurance Office at the Department of Treasury, and the Financial Stability Oversight Council, but home warranties don’t go through the same vetting process. Because of this, some home warranty providers may be riskier to deal with than insurance companies. 

Who regulates home warranty companies?

Regulation of home warranty companies vary state by state and are overseen by different sectors. In some states, there’s no regulation or oversight. For example, the Florida Office of Insurance Regulation handles home warranties in Florida, whereas the Texas Real Estate Commission is in charge of them in Texas. New York handles these contracts under the Department of Financial Services, but Georgia has laws under home service contracts. Most frequently, the Commissioner of Insurance oversees home warranties. 

The National Home Service Contract Association is a nonprofit organization that offers self regulation for home warranty providers. The organization provides a code of ethics for providers to follow and guides their business practices. Companies registered with this organization typically have an easier system for resolving complaints.

What to look for in a home warranty contract

Although home warranties are, in theory, a great way to protect some of your expensive home appliances, many people end up reporting the providers to the Better Business Bureau (BBB) when they don’t receive the payout they expect. Below are 10 things you can do to protect yourself from getting scammed.

1. Check if you already have protection

New appliances and other appliances that may not be new could still be under warranty if you purchased them with a credit card. Credit cards can help extend warranties beyond the manufacturing warranty.

2. Opt for a local provider over a larger national company when you can

You’ll often be more likely to receive more affordable coverage that’s better suited to your needs with a local home warranty company. Check the BBB to get some insight on the company’s customer satisfaction and reviews from current and past customers.

3. Find out how much the warranty will cost

Extended warranty costs vary by state, provider, and the type of plan you choose. It’s a good idea to do your research on what the financial commitment will be for your desired plan and coverage.

For example, a plan in Westchester, New York, might cost $900 for appliances and $1,020 to add electrical and plumbing but still have add-on expenses (like when the contractor comes to perform the work), which could cost an additional $60 to $125. On the other hand, a plan in Central Ohio might cost $600 for appliances and $600 to include electrical and plumbing.

4. Know the extent of what your warranty covers

Take the time to read and understand the terms and conditions of your desired home warranty plan. The coverage details can be very specific and the legal language could be tricky to understand if you don’t read the contract closely.

For example, refrigerators may be covered under your home warranty plan but not their ice makers. Some circumstances, like ovens breaking during the self-cleaning mode, could prevent you from getting the payout you may expect. Additionally, if you didn’t perform what is classified as routine maintenance by the home warranty provider, you may not be covered.

5. Determine if your plan will repair or replace a broken item

Most home warranty companies will cover the repair or replacement of malfunctioning items. If a repair is too expensive, the home warranty provider will offer to replace the item but possibly reimburse you at a lower value, leaving you to make up for the difference to get the same model you previously had.

6. See if there are limits to how much the plan will pay out

There are typically limits on how much you can be reimbursed by a home warranty company. The ultimate amount will vary depending on your home warranty provider and plan. Some plans will pay up to $2,000 over the course of a year to assess, diagnose, repair, or replace each item that is covered.

7. Look into the quality of the provider’s customer service

It’s easy to forget about customer service when everything is working as it should, but when you need to get in touch with someone at the home warranty company about filing a claim, you’ll want to make sure the process is as seamless as possible and that someone is able to help you quickly.

8. Ask about the average turnaround time

You may not realize how important your refrigerator or stove is until it breaks, and when it does, you’ll want to get it fixed as quickly as possible, so learning how long it will take for a technician to come out and repair the item is paramount. Ask what that maximum turnaround time may be, even in the busy season.

9. Find out when the plan goes into effect

Learning when the plan officially starts after signing the dotted line will help you know when coverage begins and you can start making claims. In general, there’s a 30–60-day waiting period after opting into a contract.

10. Investigate the home warranty provider’s online services

Find out if you’re easily able to navigate the home warranty company’s website and if someone is available 24/7 in case of emergency. If there’s a way to fill out a claim online as opposed to over the phone, it may save you from having to stay on hold for an extended amount of time

How to file a complaint about home warranty companies

If you have an issue with a home warranty company, you can file a consumer complaint with the BBB. You should file your claim as specified in the plan details and save any conversations you’ve had or notes from working with the company. 

If there’s been an issue with the coverage or work was completed incorrectly, check to see if your home warranty provider allows for mediation and arbitration. You may have to pay a fee to have access to those services and could end up in count.

You can also speak to the state attorney general or state insurance agency to try and settle the dispute with insurance commissioners. Your real estate agent may have some leverage if he or she has a good working relationship with the home warranty provider.

If your claim has been denied, set a reasonable deadline for appropriate action to be completed from the service provider. If the time passes with no resolution, you should repair or replace the item as if you did not have a home warranty and sue for reimbursement, if needed.

If you’ve decided to file a lawsuit, you can either go to your local magistrate court and file there where you’d be able to represent yourself, or you can hire a warranty lawyer and gather the letter from the insurance company. If no attorney seems to be willing to take your case, it may be a sign that you don’t have a case.

Are home warranties worth it?

Despite some complaints around home warranties, a home warranty can help you save substantially on expensive home repairs and give you peace of mind that you won’t be stuck footing a costly repair bill. If you’re buying or own an older home with aging appliances, a home warranty can be a great option to help with homeowner cash flow should something break.

Frequently asked questions

What’s the difference between a home warranty and home insurance?

Provided by an insurance company, home insurance covers home damage due to a fire, natural disaster, storm, or theft, whereas a home warranty covers the appliances and systems inside your home from normal wear and tear. Purchasing both would cover your appliances, systems, and home from damage, depending on what is covered in the contract.

How long does a home warranty last?

Home warranty contracts typically last for a year, depending on your provider and plan, and they’re renewable from year to year.

How does a home warranty work?

Home warranties work by selecting your annual coverage plan and taking out a home warranty contract with a home warranty provider. As long as it’s covered in your plan, when a home appliance or system breaks down, you can call your home warranty provider to have a technician or contractor come out to your home to assess and diagnose the item that’s malfunctioning or broken.

You’ll pay a service fee for the visit, as detailed in the contract. Following their analysis, the home warranty company will have the technician repair the item or they will pay you to replace it, depending on the details of your contract.

Who pays for a home warranty?

If you’re buying a home, speak to your real estate agent about coordinating with the seller to determine who would pay for the home warranty at closing. Depending on the local customs, the seller often pays for it because it benefits the seller for the sale. It’s a great way to entice buyers and show good faith that everything is in working order.

Additionally, it gives sellers peace of mind from having to worry about getting potential complaints from the buyer about appliances or systems breaking down after the sale. If sellers already have a policy, it can usually be transferred to a new owner.


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