- The Washington Times - Thursday, September 16, 2010

Ten years ago, when Ryall Smith purchased his century-old town house on Capitol Hill, he decided he needed a little help when it came to the aging appliances within. He purchased a home-service contract, more commonly known as a home warranty.

“I’m a person who doesn’t know how to fix anything,” says Mr. Smith, a Realtor with Coldwell Banker’s Capitol Hill office. “And the appliances in the house weren’t bad, but they weren’t brand-new, either.”

According to the Service Contract Industry Council (SCIC), a national trade association based in Tallahassee, Fla., the number of home-service contract sales was up in 2009. One of the largest home-warranty providers nationwide, American Home Shield, saw renewals jump last year by almost 2.5 percent, with new sales increasing by more than 18,000.

Industry experts say a number of reasons explain the increase, from changing lifestyles and convenience factors to increased budget consciousness and awareness that new technology makes it nearly impossible to fix things the way one might have done 20 years ago. Meanwhile, home sellers frequently use home warranties to help make properties more attractive, and homebuyers often demand one to seal the deal.

“The economy has driven the value [of home warranties] up to potential sellers and buyers of new homes,” says Stephen McDaniel, assistant general counsel for SCIC.

So what is a home-service contract or home warranty? Although the details can differ from state to state and company to company, most home-service contracts specify that the company will service, repair or replace certain listed appliances that fail because of normal wear and tear.

“It’s not a builder’s warranty,” says Art Chartrand, national counsel of the National Home Service Contract Association, who notes that the industry has been evolving over the past 40 years as consumer needs have changed. One thing that has evolved is the name; the industry tends to favor “home-service contract” to distinguish it from builder and other types of warranties, although the term “home warranty” is favored by Realtors and others as a marketing term. Consumers also may see references to a “home protection company” or “residential service company.”

Such warranties generally do not cover exterior foundations, walls or structural finishes. Nor will warranties necessarily cover all the costs involved in replacing, say, a furnace or air-conditioning unit, but they will help defray those costs. The plans, which are in effect for one year, generally cost between $350 and $500, with charges for service calls ranging from about $50 to $100 each time a contractor arrives to diagnose a problem. More expensive contracts also can cover an array of optional items, such as “roof leak coverage.”

Industry executives caution that a home warranty is not insurance and should be considered a complement, rather than a substitute, for the array of insurance plans available to homeowners.

So when Mr. Smith had to deal with a constantly running toilet during his first year in his row house, he called his warranty company, American Home Shield. He spent about $60 for his service call on a plan that cost him $395 at the time.

“When I told people what had happened who had the same problem and no home warranty, I found they had ended up paying a lot more to fix it,” he says.

And when Mr. Smith’s furnace broke down three years into his residence, he again made use of his home-service contract, which he renewed year after year.

“That time it really paid off,” he says, “and I’ve used them for a stove and a couple of plumbing issues later on.”

Mr. Smith’s home-service contract didn’t cover everything. He ended up having to shell out about $2,000 on the $4,000 bill for his furnace, but a couple thousand dollars can make a big difference in the budget.

Indeed, Mr. Smith was so happy with his service contract that he has given one to his parents every Christmas for the past five years. They live in Shreveport, La., so the home-service contract also gives Mr. Smith some added peace of mind.

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