Owning a home comes with many responsibilities and costs for maintenance, repairs, and unexpected system failures. From appliances and HVAC to plumbing and electrical, there’s a lot that can go wrong. Being proactive about home protection is essential. One way homeowners can minimize the headaches and hassles of repair bills is through a residential service contract.
This pre-paid annual contract covers repairs and replacements for home systems and appliances, providing budget stability and peace of mind. With a service contract, homeowners pay an annual fee in exchange for discounted or free repairs as issues pop up throughout the year.
In this article, we’ll explore the key benefits of residential service contracts, what they typically cover, what to look for when choosing a provider, and whether the investment is right for your home. We’ve also included a sample residential service contract template to use as a guide if you move forward with this home protection option. Let’s dive in to the details and see if a residential service contract is a smart addition for your house.
Table of Contents
What is a Residential Service Contract?
A residential service contract, sometimes called a home warranty, is a service agreement that covers repairs and replacements for a home’s systems and appliances that break down due to normal wear and tear. For an annual fee, the contract provider will repair or replace covered items like appliances, electrical, plumbing, and HVAC systems.
The homeowner pays a trade call fee for each service request, typically $60-100, and the contract provider covers the remaining repair or replacement costs up to the limits set in the contract. It protects the homeowner from unexpected breakdowns and repair expenses. Residential service contracts give homeowners the assurance that most major systems are covered if they stop working properly.
Residential Service Contract Examples
A residential service contract is a legally binding agreement between a homeowner and service provider. It outlines the terms and conditions for ongoing services like lawn care, snow removal, maid service, etc. The contract provides specifics about service frequency, costs, payment methods, and other details. It aims to set clear expectations between both parties.
Service companies utilize contract templates to cover all bases for recurring services. Template sections present important considerations like contract duration, pricing, exclusions, cancellation policies, and liability. For example, a lawn service contract template may specify weekly or bi-weekly grass cutting during the growing season. It would list additional service rates for fertilization, weed control, and fall leaf cleanup. The template facilitates customization for each client’s property maintenance needs.
Homeowners should review residential service contracts thoroughly before approval. They should ensure the template accurately reflects verbal agreements about service scope and scheduling. Comparing multiple provider templates allows homeowners to select the best service contract for their needs and budget. Both parties must be satisfied with the contract’s coverage before signing an agreement to initiate services. Thoughtful service contract templates help avoid misunderstandings down the road.
Importance of a Residential Service Contract
The decision to own a home is often one of the most significant investments an individual or family makes. Yet, beyond the initial purchase, homes can present unforeseen challenges in terms of maintenance, repairs, and system replacements. This is where the significance of a Residential Service Contract (RSC) comes into play. Here’s a detailed guide explaining its importance:
- Financial Protection:
- Predictable Costs: With an RSC, homeowners pay a predetermined fee, which can help in budgeting for potential repairs and replacements. Without it, unexpected breakdowns can result in significant unexpected expenses.
- Cost Savings: Over time, the cumulative cost of individual repairs or replacements can be substantial. An RSC can help homeowners save money in the long run.
- Peace of Mind:
- Avoiding Stress: Knowing that potential problems are covered reduces anxiety related to sudden malfunctions or system failures.
- No Search for Contractors: Finding a trustworthy and competent service provider at the last minute can be stressful. RSCs often come with a network of vetted professionals, eliminating the need for homeowners to search on their own.
- One-Stop Solution: Rather than dealing with multiple service providers for different home systems, an RSC provides a consolidated solution.
- Timely Repairs: Since service providers are contractually obligated, repairs and replacements under RSCs are often prompt, reducing downtime.
- Home Value Preservation:
- Regular Maintenance: Some RSCs also include periodic maintenance checks, ensuring that home systems and appliances are running efficiently and prolonging their lifespan.
- Attracting Buyers: If selling a home, having an active RSC can make the property more appealing to potential buyers, ensuring them that the house has been well-maintained.
- Quality Assurance:
- Vetted Professionals: RSC providers usually have a list of vetted professionals ensuring quality service and genuine spare parts.
- Standardized Services: There’s a uniform standard of service quality and pricing, which means homeowners don’t get overcharged or receive sub-par services.
- Flexibility and Customization:
- Tailored Coverage: Not all homeowners have the same needs. Many RSC providers offer customizable plans, allowing homeowners to choose coverage based on their specific appliances and systems.
- Upgrade Options: As homeowners acquire new systems or appliances, many contracts allow for modifications to the coverage, ensuring that the latest additions to the home are also protected.
- Legal Protection:
- Clear Terms: RSCs provide clear terms and conditions, specifying the obligations of both parties. This clarity can prevent potential disputes.
- Dispute Resolution: Many RSCs come with a provision for resolving disagreements, be it through arbitration or other means, ensuring that disputes are settled without lengthy and costly court processes.
What Does a Residential Service Contract Typically Cover?
Most residential service contract providers offer multiple plans for homeowners to choose from. Often, these are categorized as systems coverage, appliance coverage, or total coverage. Systems plans cover repairs to major home systems like HVAC, plumbing, and electrical. Appliance plans focus on kitchen and laundry appliances. Total or comprehensive plans include both system and appliance coverage. Below are examples of what different levels of residential service contracts typically cover.
One of the most common inclusions in residential service contracts is the home’s primary heating system. This includes the furnace, heat pump, boiler, or other heating unit that services the entire home. Contracts cover repairs and full replacement if the system can no longer be fixed. Ductwork and many heating components like thermostats, relays, valves, and heat exchangers are also generally covered. However, premium or secondary heating units may be excluded.
Air Conditioning Systems
Similar to heating systems, a home’s primary air conditioning unit is typically covered including central air conditioning, evaporative coolers, and whole house fans. The contract covers repairs to the condensing unit, coils, compressor, motors, thermostat, and other components. If the system cannot be repaired, full replacement is covered up to the contract dollar limits. As with heating, supplementary or niche AC units may not be included.
Residential service contracts provide coverage for leaks, clogs, and breakdowns in the home’s plumbing system. This includes supply pipes, drain pipes, faucets, toilets, water heaters, sump pumps, pressure regulators, and more. Garbage disposals, indoor gas lines, shut-off valves, and other common plumbing fixtures are generally covered as well. However, specialty plumbing like sprinkler systems may be excluded.
Problems with the home’s main electrical panel, wiring, outlets, switches, and fixtures are typically covered under a residential service contract. This includes ceiling fans, hardwired lighting, doorbells, and more. Contracts cover electrical repairs up to code so long as no upgrades are required. But specialty lighting and audiovisual wiring may not be included.
Many major home appliances are also commonly covered, though the specific appliances included can vary by contract. Ovens, ranges, cooktops, microwaves, dishwashers, refrigerators, freezers, washers, and dryers are often covered. Coverage extends to components like compressors, motors, heating elements, control boards, etc. Luxury or specialty appliances may be excluded or require additional purchase.
For homes with pools and spas, residential service contracts often cover the repair of pumps, motors, heaters, and filtration systems. Some may cover pool resurfacing and leak detection as well. However, chemical balancing and maintenance are generally excluded. Accessory features like hot tubs, saunas, and steam showers also may not be included.
Other Common Inclusions
- Garage door openers and hinged doors
- Ceiling fans
- Central vacuum systems
- Built-in bathtub whirlpool motors
- Septic system pumping
- Limited coverage for code violations or improper installations
What Doesn’t a Residential Service Contract Usually Cover?
Residential service contracts act as a shield against the usual wear and tear that affects key home appliances and systems. While specifics can differ based on the provider and the selected plan, it’s noteworthy that these home warranties often come with certain exceptions. Here are some typical items that might not be covered:
One key exclusion common to most residential service contracts is pre-existing conditions. Any issues or defects present prior to the contract start date are not covered. Only breakdowns that occur after the contract term begins are included. Some providers may waive this exclusion if the systems are inspected and approved beforehand.
Residential service contracts cover only functional repairs. Improvements or repairs purely for aesthetic reasons are not included. For example, chipped porcelain on a bathtub, scratched finishes on cabinets, worn countertop laminate, and faded exterior paint would not be covered. The contract repairs systems when they break down, not just to improve appearance.
Standard maintenance and cleaning are generally excluded from coverage. This includes furnace filter changes, AC coil cleaning, chimney sweeping, drain unclogging, pest control, lawn/landscape care, and similar regular maintenance. The contract covers repairs once breakdowns occur, but does not cover preventative maintenance.
While some repairs related to code violations may be covered, upgrades strictly required to meet building codes are typically excluded. For example, if a water heater leaks and requires replacement, the new one would be covered. However, the contract likely won’t cover the added cost of meeting the latest energy efficiency standards.
Repairs required during remodeling projects or upgrades to systems are not covered by residential service contracts. Only repairs on existing covered systems due to normal wear and tear are included. Any changes made during remodeling, such as moving appliance locations, are excluded.
- Normal replacement of consumables like batteries, light bulbs, filters
- Telephone wiring
- Damages caused by natural disasters, power surges, flooding
- Rodent/pest damage
- Non-standard plumbing fixtures
- Septic leach fields and sewer lines
- Water storage tanks
- Costs related to hauling away equipment
Knowing the fine print on what is and isn’t covered by a residential service contract is essential for homeowners. While they provide extensive protection for many major home systems, there are limits to what is included. Reviewing the specific contract terms carefully allows buyers to understand gaps in coverage to avoid surprise costs down the road. Considering both what is covered and excluded helps homeowners pick the ideal service contract for their home.
How Much Does a Residential Service Contract Cost?
When considering a Residential Service Contract (RSC), often known as a home warranty, one of the primary concerns homeowners have is cost. The price can vary widely based on numerous factors. Let’s delve into the details to give you a clearer picture.
Basic vs. Premium Plans
- Basic Plans: Typically cover essential systems and appliances like plumbing, electrical systems, ovens, and water heaters. The cost for basic plans usually ranges from $300 to $600 annually.
- Premium Plans: These are more comprehensive and might include items like pools, spas, or septic systems. Premium plans can cost anywhere from $600 to $1,200 annually or even more.
Add-ons and Customization
If you want coverage for items not included in your selected plan, most companies offer add-ons at an additional fee. For instance:
- Pool or Spa: Typically an additional $100 to $300 annually.
- Septic System: Might add $50 to $150 annually.
The cost of living and the prevailing rates for repair services in different regions can affect the price of the RSC. Typically:
- Urban areas, with higher costs of living, might have slightly pricier contracts than rural regions.
Deductibles or Service Call Fees
Almost all RSCs come with a service call fee or deductible that you’ll have to pay when you make a claim. This fee ranges:
- Usually between $50 to $125 per service call. The specific amount can sometimes be adjusted, with higher fees leading to lower annual premiums and vice versa.
- Most RSCs are annual contracts, but some companies offer monthly payment options or multi-year contracts at discounted rates.
Type of Residence
The size and type of residence can influence the cost:
- Single-Family Homes: Standard pricing.
- Condos or Townhomes: Might be slightly less expensive due to the smaller size and fewer systems.
- Multi-Unit or Rental Properties: Might have different pricing structures, often higher due to increased usage.
Age of the Home
Older homes might have systems or appliances that are more prone to breaking down, so:
- Homes over a certain age, say 10 or 15 years, might come with slightly higher RSC costs.
Special Promotions or Discounts
Many companies run promotions, especially for new customers:
- Look out for seasonal discounts, multi-year contract promotions, or referral discounts.
Company Reputation and Reviews
Renowned companies with a long-standing positive reputation might charge slightly more than newer, less-known companies. However, remember:
- Paying a bit more for a reliable company that honors its claims promptly might be worth the additional cost.
Who Should Get A Residential Service Contract?
A Residential Service Contract (RSC), commonly referred to as a home warranty, can be a valuable asset to various individuals in different situations. But is it right for you? This guide will walk you through different scenarios and profiles to help you decide if an RSC aligns with your needs.
1. Homeowners with Older Homes
- Why? As homes age, the risk of systems and appliances breaking down increases. Homes that are 10 years or older may start experiencing more frequent issues.
- Benefit: The contract helps mitigate potentially high repair or replacement costs.
2. First-time Homebuyers
- Why? Being new to homeownership might mean limited knowledge about the state and reliability of home systems and appliances.
- Benefit: Provides peace of mind, knowing that potential malfunctions won’t result in hefty unexpected bills.
3. Homeowners Without Emergency Funds
- Why? Not everyone has a substantial savings cushion for unexpected repairs.
- Benefit: An RSC allows for more predictable budgeting, with set annual fees replacing unforeseen high repair costs.
4. Individuals Unfamiliar with Home Maintenance
- Why? Not everyone is a DIY expert or has experience managing home repairs.
- Benefit: The service contract connects homeowners with vetted professionals, eliminating the hassle of finding and vetting contractors.
5. Sellers Looking to Add Value to Their Listing
- Why? An RSC can make a property more appealing to potential buyers.
- Benefit: Offers reassurance to buyers that they’re not walking into a home with potential undetected issues.
6. Real Estate Agents Facilitating a Sale
- Why? To smoothen the selling process and offer additional value to both buyers and sellers.
- Benefit: A home with a warranty can be a unique selling point, potentially speeding up the sale process.
7. Landlords and Property Managers
- Why? Rental properties can have frequent maintenance needs, especially with tenant turnovers.
- Benefit: An RSC can simplify the repair process and ensure timely solutions, ensuring minimal inconvenience for tenants.
8. Homeowners with High-end Appliances and Systems
- Why? The cost to repair or replace premium appliances can be significant.
- Benefit: The RSC can provide coverage tailored to high-end systems and appliances, potentially saving substantial amounts in the long run.
9. People with Busy Lifestyles
- Why? Managing home repairs can be time-consuming.
- Benefit: A single point of contact for various repair needs can save time and reduce stress.
Points to Consider
While many can benefit from an RSC, it’s also essential to weigh the annual costs of the contract against potential repair expenses. Some might find that, for their specific situation, setting aside a monthly amount for potential repairs might be more economical. Always read the fine print to understand coverage limits, exclusions, and service call fees.
How to Write a Residential Service Contract: A Detailed Step-by-Step Guide
Creating a comprehensive service contract involves detailed planning and preparation. You need to determine which systems and appliances to include, set coverage limits, establish service fees, outline exclusions, and follow all legal guidelines. Drafting a thorough contract that protects the interests of both the homeowner and service provider requires meticulous attention to detail. In this step-by-step guide, we will walk through the key steps involved in crafting a residential service contract from start to finish. Following these best practices will enable you to produce an effective home warranty agreement that provides clarity and delivers value.
Step 1: Preliminary Research
Before diving into the contract-writing process, conduct a thorough research phase. Familiarize yourself with existing templates and standard contract clauses related to Residential Service Contracts (RSC). Studying state and local laws will ensure that your contract remains compliant with any local regulations or requirements. It’s also beneficial to review other home warranty contracts in the market to understand industry standards.
Step 2: Define the Parties Involved
Clearly define and list all parties involved. Typically, this would be the service provider and the homeowner. Be sure to include full names, contact details, and addresses. Clarity at this stage will prevent misunderstandings and ambiguities later. An unclear contract can lead to disputes or even potential legal challenges, so ensure names, roles, and responsibilities are distinctly stated.
Step 3: Specify Coverage Details
List out, in clear and specific terms, what systems and appliances are covered. For example, under “Appliances”, you might detail that the warranty covers the refrigerator, built-in microwave, dishwasher, etc. Conversely, also specify which variants or models are excluded. For each covered item, detail the extent of the coverage—does it cover repairs, replacements, or both? Remember, the clearer the coverage terms, the less room there is for disputes.
Step 4: Outline Exclusions
Equally crucial to specifying what is covered is stating what isn’t. Be exhaustive here. If, for example, the warranty does not cover damages due to natural disasters or neglect, state this clearly. Furthermore, it’s common to exclude pre-existing conditions, so if this is the case for your contract, provide a clear definition of what constitutes a pre-existing condition.
Step 5: Clarify the Claim Process
Detail the procedure a homeowner must follow to file a claim. Specify any time frames (e.g., claims must be made within 24 hours of discovering an issue), the documentation required, and how the claim will be evaluated. It’s also beneficial to detail the process the service provider will follow, including response times and how contractors are selected for repairs.
Step 6: Include Payment and Fee Details
Clearly detail the overall cost of the RSC, any down payments required, and possible payment plans. If there are additional fees, such as for service calls or deductibles, state these amounts. Be transparent about any penalties for late payments or potential refunds if the contract is terminated early.
Step 7: Address Contract Termination
Describe under what conditions the contract can be terminated, either by the homeowner or the service provider. This can include things like non-payment, breach of contract terms, or even voluntary termination. Furthermore, outline any penalties, fees, or prorated refunds associated with contract termination.
Step 8: Dispute Resolution
In the event of a disagreement or dissatisfaction, it’s essential to have a clearly defined process for resolution. State whether disputes will be resolved through mediation, arbitration, or litigation. Specifying this in advance can save both parties time, money, and stress.
Step 9: Add a Liability Clause
This clause can protect the service provider from excessive claims. For instance, if a malfunctioning appliance causes damage to a homeowner’s property, the clause might limit the service provider’s liability to the cost of the repair or replacement of the appliance itself, not the subsequent damage.
Step 10: Include a Governing Law Statement
Mention which state or country’s laws will govern the contract. This is crucial for clarity in the event of any legal disagreements, ensuring both parties know which jurisdiction’s rules apply.
Step 11: Final Review and Legal Consult
Before finalizing the contract, review it multiple times for clarity, completeness, and any potential ambiguities. It’s highly advisable to consult with a legal professional who specializes in contracts or residential services. They can provide insights that you might have missed and ensure the contract’s legality.
Step 12: Add Signature Blocks
Conclude your contract with spaces for all parties to sign and date. Ensure you have spaces for printed names and titles (if applicable), so there’s no doubt about who has agreed to the contract’s terms.
Top Companies For Residential Service Contracts
|Select||24/7 customer support, online claims processing, customizable plans||Basic: $350/yr, Premium: $550/yr||Major appliances, HVAC, plumbing, electrical||$75 per service call|
|American Home Shield||Network of skilled contractors, flexible plans, appliance buy-back option||Basic: $400/yr, Premium: $600/yr||Electrical, appliances, pools, water heaters||$100 per service call|
|Service Plus||Fast response time, mobile app for claims, multi-property discount||Basic: $300/yr, Premium: $500/yr, Platinum: $700/yr||All major systems, optional coverage for pools, spas, and external structures||$50 per service call|
How does an RSC differ from homeowner’s insurance?
While both provide protection for homeowners, they cover different things. Homeowner’s insurance typically covers damage to the home and personal property from events like fires, theft, or natural disasters. An RSC, on the other hand, covers repairs and replacements of specific home systems and appliances due to wear and tear.
Can I choose my own repair technician or contractor?
Typically, the RSC provider will have a list of approved contractors or technicians that they work with. However, some contracts may allow homeowners to choose their own, but it’s essential to check with the provider before authorizing any work.
How do I make a claim if something breaks down?
Most RSC providers have a hotline or online portal where you can file a claim. Once a claim is made, the provider will usually send out an approved technician to assess and address the issue.
Are there any limits on how much the contract will pay out?
Yes, many RSCs have caps or limits on how much they will pay for a specific repair or replacement within a contract term. It’s crucial to be aware of these limits when reviewing and selecting your contract.
Can I cancel my RSC?
Most RSCs allow cancellations, but there might be cancellation fees or specific terms you need to follow. Some contracts may offer a full refund if canceled within a certain period after purchase.
Are all RSCs the same?
No, there can be significant differences in terms of coverage, cost, exclusions, service fees, and limits among various providers. It’s essential to compare different options and read reviews before making a decision.
How does an RSC in Texas differ from other states?
Every state has its regulations and requirements for Residential Service Contracts. In Texas, RSCs are overseen by the Texas Real Estate Commission (TREC). Providers in Texas must be licensed by TREC and adhere to its regulations. Texas often has specific provisions or required clauses that might not be present in contracts from other states.
How long is a residential service contract?
The duration of an RSC can vary, but most contracts are annual, meaning they last for one year from the start date. Some providers offer monthly plans, while others might provide multi-year contracts at a discounted rate. It’s always essential to check the contract’s expiration date and understand the renewal process.
What if I sell my home? Is my RSC transferable?
Many RSCs are transferable to the new homeowner, making it an added selling point for potential buyers. There might be a small administrative fee or process to transfer the contract. Always check with your provider for specific transfer details.
Are there deductibles or service fees with an RSC?
Yes, many RSCs have a service fee or deductible that homeowners must pay when they make a claim. This fee is typically required when a technician is sent out for repairs. The amount can vary depending on the provider and the specific contract.