Labeling a home service contract as a home warranty for marketing purposes isn’t against the rules but it can be confusing for consumers. The liberal use of the word warranty can also be confusing for home owners who have a contract already but are not sure whether it’s a home warranty in the strictest sense or more of a service contract. If you are like many home owners then you may not know the difference between a true home warranty and a home service contract. Here are the most essential differences.
1. Warranty is a legal term
Though there are few legal limits on the use of the word “warranty” it is subject to at least some state and federal laws and regulations these days. The reason for that lies in the confusion and misinterpretation that can come out of the intentional or accidental misuse of that particular word. Warranty is a legal term after all. And like all legal terminology it is intended to be used in a carefully chosen and defined manner. For example, a carpenter can sign a contract with a home owner in which a warranty is given for the quality of work performed. The warranty can be defined to include limits on what sorts of flaws are covered and how far into the future the work is guaranteed. Many service contracts which are referred to as warranties don’t stand up the legal tests for the technical, legal terminology.
2. Home service contracts are never mandatory
Where some states require a builder to provide a warranty on their work in order to protect home buyers from the pitfalls of poor workmanship or defective materials, home service contracts are never a requirement. Home service contracts cover products or materials which the company providing the service contract had no part in manufacturing or constructing. And in the end what the consumer pays for is substantially different than the home warranty contracts which are normally associated with home builders’ contracts with the buyers of their houses. Statutory requirements for home warranties exist to protect home buyers. Home service contracts serve a very different purpose.
3. Home warranty covers workmanship and materials used and once it ends it cannot be renewed
While home service contracts cover things such as appliances that a home owner owned prior to purchasing the contract, home warranties, in the truest use of the words, only cover the workmanship and materials that go into the construction of a house. Whenever a home warranty on a newly built, never lived in home is mandatory by way of state regulations on home builders that warranty typically covers very specific materials and implied work quality. Home warranties on newly built, never lived in homes don’t come with options such as renewal after the end of the contract period because they are not sold as a service but as a protection for builders against the huge liability of costs incurred when a home proves to have structural or other problems.
4. Home service contracts often come with service call fees, sometimes referred to as deductibles
A home service contract typically passes part of the cost of a service call on to the home owner. Service call fees as they are often called are similar to an insurance deductible in the sense that they are an out of pocket expense before the costs covered by the company providing the contract to the home owner. A service call fee may be between $50 and $100, sometimes less, sometimes more. Because a home service contract isn’t really a warranty in the legal sense it does not guarantee that a product is free from defect. Oftentimes a home service contract doesn’t even guarantee that problems that result in service calls will result in an approved claim. With a service call fee covering the cost of the contractor’s visit to the home and an open ended ability to decide whether a particular problem is appropriate for coverage or not it’s no surprise that some consumers feel that home service contracts are a waste of money. Though this generalization is probably not true it is correct to say that using the term “home warranty” may cause expectations on the part of home owners that do not fit with the typical coverage limitations set by many home service contracts.