Lots of loopholes in home warranties

Not exactly. Instead, Balestrieri entered a world of fine print, service call fees and unreliable contractors.

“I think it gives an artificial sense of security to people when they buy a house, that if something goes wrong it will only cost a $60 service call, like a co-pay on [health] insurance. But in reality, what you get is much less,” Balestrieri said.

“It always seemed we ran into a problem that wasn’t covered,” she explained. “Either we had to buy the part, and it was the $500 or the $300 part, or we had to pay the labor, and it was a $500 or $300 labor cost. ... It’s always a negotiation. You have to be careful.”

Home service warranties cover service, repair and sometimes replacement of major appliances and basic home systems. Costing from $250 to $600 for a year, these contracts can cover electrical and heating systems, interior plumbing, water heaters, dishwashers, refrigerators and garbage disposals. They often are sold in tiers, with varying levels of cost and services.

These pseudo-insurance policies are becoming a routine addition to residential closings. Contract renewals are becoming a larger part of the market.

But are they worth it?

Most consumer gurus advise buyers to have healthy skepticism — and open eyes. Consumer advocate Clark Howard, who has a nationally syndicated radio show featured on CNN’s Headline News, doesn’t mince words when it comes to these contracts.

“My experience over time, the home warranties generally aren’t worth the paper they’re written on,” he told a caller recently. “The number of complaints I’ve had through the years, enormous. And unfortunately, a lot of players over the years in the home warranty business have gone out of business.”

There are a few dozen home warranty companies in Georgia. But they aren’t considered insurance companies, so they aren’t closely regulated by the Georgia Department of Insurance. And although state law requires them to have their own insurance or financial backing, there’s no requirement to check whether they actually have it.

So, if a company goes out of business or abruptly shuts its doors, customers can be left in the lurch.

The Governor’s Office of Consumer Protection, which last week announced a name change from the Office of Consumer Affairs, recommends consumers do research before buying.

“It’s like a lot of things, it may sound better than it is,” said OCP spokesman Bill Cloud. “And you want to be very careful what it is. Like anything, you have to know what you’re dealing with.”

Atlanta real estate agent Janey Lowe said service contracts have been gaining popularity for about 15 years.

“We put them in our contracts all the time as a fail-safe, where if something goes wrong, [new homeowners will] be covered,” said Lowe, who has been in the business for 22 years and works with Beacham & Co. “I’ve had success with it, where they move in and the next day the hot water heater goes. That’s happened a couple times with me.”

American Home Shield, who says it’s the biggest company in the service contract market with 1.4 million customers in 49 states and a network of 11,000 independently insured contractors, encourages consumers to ask questions.

“As with any contract, it’s always important for consumers to read their contracts,” AHS spokesman Chris Curran said in a statement. “Understand what your home warranty policy does and does not cover. At AHS, we recommend that homeowners call our service center to review the details one-on-one with one of our customer service specialists. It’s a great opportunity for AHS to answer any questions and the homeowners to become familiar with the coverage.”

Balestrieri isn’t totally soured on service contracts, although she didn’t renew hers. She thinks they might be helpful for big-ticket items – if they are covered. But her “garbage disposal experience” convinced her that routine repairs aren’t worth it.

When her disposal was on the fritz, Balestrieri said, the plumber told her she would need a new one and the service contract wouldn’t cover it. When she asked why the machine stopped working, she said he told her there was a “foreign object” in it – and that wasn’t covered by the policy either.

“Just give me the pliers,” she recalled telling him, “and I’ll get it out of there.

“And I did.”

Balestrieri paid the plumber $60 to borrow his pliers.

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