Residential service contracts can help save homeowners money on expensive repairs and replacements on major home systems and appliances. Read on to learn more about these service contracts, including how they work, what they cover, and what costs are associated with them, and who we recommend as the best home warranty company.
What Is a Residential Service Contract?
A Residential Service Contract is a policy that covers repair and replacement costs for home systems and appliances that face mechanical breakdowns resulting from normal wear and tear. This service contract is optional for homeowners and frequently called a home warranty or home service contract.
The term, residential service contract, appears to be commonly used in Texas and is defined as a service where, for a fee and for a specified period of time, a company agrees to repair or replace major appliances or systems in a residential property. Texas real estate contracts also have a clause where home sellers can specify how much they will pay toward the buyer’s purchase of a home warranty contract if they agree to pay for all or part of the contract as part of the negotiation process.
When Can I Purchase a Residential Service Contract?
Most home warranty companies allow you to purchase a contract at any time during homeownership. However, sellers may find that the inclusion of a home warranty improves the value of their home, and buyers may experience increased peace of mind knowing that they may not need to pay for repairs or replacements in their new home.
What’s Covered Under a Residential Service Contract?
Covered items typically fall into one of three categories: appliances, systems, and add-ons. Add-ons are optional extras that don’t fall under standard contracts, but you can pay an extra fee to have these items covered. Here’s what’s commonly covered under a residential service contract.
- Kitchen refrigerator
- Clothes washer/dryer
- Built-in microwave
- Garbage disposal
- Ceiling fans
- Central vacuum
- Air conditioning
- Heating system
- Electrical system
- Plumbing system/stoppages
- Water heater
Common add-ons include your pool, spa, additional refrigerator, roof leaks, well pump, sump pump, septic tank, alarm system, and guest units.
What’s Not Covered in a Residential Service Contract
While most home systems and appliances are covered under a residential service contract, there are certain features of a home that don’t receive coverage, such as:
- Garage doors/door tracks
- Windows, walls, and doors
- Sprinkler systems
- Window air conditioning units
- Ornamental fountains
It’s also important to note the types of damage that home warranties don’t cover. If a covered appliance or system suffers from one of the following types of damage, you’ll typically be responsible for the full cost of repairing or replacing it:
- Damage from accidents or misuse
- Pre-existing conditions (known or unknown)
- Improper installation or modification
- Insufficient maintenance
Many residential service contracts are similar in the items they will and won’t cover, but it’s important to read your contract before signing up for coverage so you understand what exactly is and isn’t covered.
Home Warranty Coverage Period
A typical residential service contract lasts for a year, though some providers may offer multi-year warranties for a more affordable price. Coverage generally begins 30 days after the first payment is made and customers will have to pay for any necessary repairs during that waiting period.
Residential Service Contracts Costs
With a residential service contract, you’ll be responsible for two types of costs: premiums and service call fees.
- Premiums: A premium is the amount you pay every month (or year) of the contract. Typically, this will run you between $25–$60 a month, or $300–$600 a year, depending on how comprehensive your coverage is.
- Service Call Fees: The service call fee is what you pay every time you make a claim and a technician visits your home to repair or replace your broken item. The industry standard service fee ranges between $75–$125, though some providers may charge more or less than this amount.
Some companies, like American Home Shield or America’s First Choice Home Club, will allow you to adjust your service fee relative to the amount of your premium. If you’re willing to pay a higher service fee, you can pay less for your premium, and vice versa. The service fee works like an insurance deductible, reducing your upfront payment in return for you paying more if you actually need a repair. You can choose the amounts based on how often you expect to submit claims.
- Maximum Payouts: Your contract will likely specify a maximum payout for the year—usually between $3,000 and $10,000—and there may be coverage caps for individual appliances or systems. For example, since an HVAC system is one of the more important systems in your house, a warranty provider may place a cap of $1,500 on repairs to the system. Your service call fees don’t count toward this maximum, but if you do exceed the cap within the lifespan of the contract, you will need to pay for any further work.
Here are a few factors that affect the cost of a residential service contract:
- The level of coverage—The more coverage you have, the higher the home warranty cost will likely be.
- Your location—You may pay more for a home warranty if you live in an area with a high cost of living, since it might cost the home warranty company more to send a repair technician to your home.
- How payments are set up—You might get a discount if you pay the premium in a lump sum for the year rather than making monthly payments.
- The length of contract—Some residential service contracts offer a multi-year discount.
- The service fee—Some warranty companies offer a lower annual premium if you’re willing to pay more for service calls.
How Do Residential Service Contracts Work?
Residential service contracts represent an agreement between the homeowner and the warranty provider. The homeowner pays a monthly (or yearly) premium, and in return, the warranty provider will send contractors to diagnose, repair, or replace damaged appliances or systems in the home. The homeowner does pay a set fee to the contractor like a co-pay, but the number of service calls is usually unlimited until the homeowner meets their coverage cap.
Residential service contracts are sometimes confused with homeowners insurance or manufacturers warranties, but they are separate entities. Homeowners insurance covers damage to a house from natural disasters or theft, and a manufacturer’s warranty covers defects in a particular product. Residential service contracts cover major appliances or systems within a home against normal wear and tear.
How to Make a Residential Service Contract Claim
The process for submitting a home warranty claim is quite simple and remains more or less the same across the industry.
- Contact your home warranty provider with information about the problem. Most companies offer an online account system or a toll-free number that customers can use to submit claims 24 hours a day, seven days a week, 365 days a year. Keep in mind, however, that this doesn’t mean the company will contact a technician immediately—you may have to wait until normal business hours to receive service if you submit a claim on nights or weekends.
- The company contacts a local technician who will then schedule an appointment with you. Most home warranty companies have their own network of vetted, qualified technicians, saving you the trouble of having to find a trustworthy contractor. However, some companies like AFC Home Club will allow you to use your own contractor as long as they are certified, licensed, and bonded.
- The contractor schedules an appointment to come to your home to diagnose the problem. At this time, you will pay them the service call fee.
- The provider determines whether the problem is covered by the contract. Sometimes, this can be done over the phone while the contractor is in your home. The provider will need to verify that the broken item is covered and the damage is due to normal wear and tear. If both these conditions are met, you will not be responsible for the repair or replacement costs.
- The provider sends the contractor back to your home to fix the problem. If the contractor doesn’t have a necessary part or if the entire appliance needs to be replaced, the contractor will need to make a separate visit to fix the problem.
Frequently Asked Questions
How much is a residential service contract?
A residential service contract requires a monthly premium payment, usually between $25 and $50. This works out to around $300 to $600 a year. You’ll also need to pay a service call fee, between $75 and $125, every time a technician visits your home.
Is a home warranty worth it?
No matter how well you maintain your appliances and home systems, components will wear down eventually from regular use. In these instances, a home warranty will be able to cover the necessary repairs and prevent you from spending expensive, out-of-pocket costs.
Is a home warranty required at closing?
Although a home warranty isn’t required during closing, it can act as both protection for the seller and an enticement for the buyer. The seller is assured that they won’t pay for wear and tear damage during the listing period, and the buyer can rest easy knowing that they won’t have to pay expensive costs for unforeseen problems with the new house.
Our Recommendation: American Home Shield
If you’re in the market for a residential service contract, we recommend American Home Shield, one of the oldest home warranty companies in the industry. This company has earned its reputation as a top home warranty provider by offering comprehensive coverage with flexible payment plans.
American Home Shield Plans
|Built-in exhaust, vent, and attic fans||✔️||✔️||✔️|
|Main breaker and fuse panel box||✔️||✔️||✔️|
|Doorbells and chimes||✔️||✔️||✔️|
|Interior electrical lines||✔️||✔️||✔️|
|Garage door openers||✔️||✔️||✔️|
|Interior plumbing lines||✔️||✔️||✔️|
|Faucets and valves||✔️||✔️||✔️|
|Whirlpool tub motor and components||✔️||✔️||✔️|
|Air filter discounts||✔️||✔️||✔️|
|Ovens / Ranges / Cooktops||-||✔️||✔️|
|Built-in microwave ovens||-||✔️||✔️|
|Instant hot/cold water dispensers||-||✔️||✔️|
|Roof leak repair*||-||-||✔️|
American Home Shield also offers optional coverage for pools and spas, well pumps, septic pumps, electronics, and guest units of up to 750 square feet. Additionally, customers have the option to choose between three service call fees, which is a measure of flexibility not offered by most providers.
Here’s the best of what American Home Shield offers to homeowners who purchase a plan.
- Comprehensive and customizable coverage for up to 23 systems and appliances
- Adjustable service fee ($75–$125) relative to your monthly premium price
- Ability to use your own contractor (with prior authorization)
- Discounts on the purchase of new appliances
- Better Business Bureau accreditation
- Nearly 50 years of experience in the home warranty industry
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