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Are home warrenties worth the money? Some people swear by them. I personally swear at them.

Home warrenties are an insurance policy that covers many items in your home. They cost about $400/year. When something breaks down, you call their 800 number and they send someone out to try to fix it. Usually you pay a $50-$70 trip charge, kind of like a deductible.

They say they will either fix the problem or replace it. Sounds pretty good. Especially since they don’t send someone out to inspect the condition of your home and they don’t care how old your home is.

But let’s be real. Insurance companies have to make money and they don’t do that by paying out any more claims than they really have to. So one needs to know what the exceptions to the coverage are.

I guess the bottom line is to see what customers are saying. Just do a Google search and you’ll find plenty of customer reviews for various plans. It seems that there are a lot of unhappy campers. http://www.consumeraffairs.com/insurance/am_home.html http://www.consumeraffairs.com/news04/2008/03/home_warranties.html http://www.consumeraffairs.com/homeowners/old_republic.html

Here is a link to a site by a guy who worked on the inside of one of these companies. It explains a lot. He explains how the system works. http://www.syix.com/emu/html/ahs.html

Here is a sample contract. I challenge you to read it completely and to understand exactly what you are buying, and more importantly, what you are not buying. I don’t know about you, but it makes my head hurt.

I personally have experienced these plans. I bought an older home with a 25 year old hot water heater. I thought a $400 home warranty would be a bargain because I was probabaly going to have to get the hot water heater replaced. I waited for two years before the hot water heater started to leak. It was on a Friday night. The bottom line is that the plumber they sent charged me $1350. The home warranty company paid $400 for the actual hot water heater but none of the other stuff such as disposal fees and code upgrades. With the weekend coming up and a wife and kids wanting to take showers, I wasn’t in a position to negotiate fees. I sucked it up and paid.

The next week I had a plumber over for another problem. I showed him what the other plumber had done. He said that it was probably a $900 job. That’s how much I ended up paying even after the home warranty company payed $400 for the hot water heater. I thought I could beat the system and get something for nothing but I should have known better.

Since then, I’ve read about how to beat them at their own game. I learned a lot from this post here on ActiveRain by Beverly Cohen. She says that one should be ready to take the home warranty company to court if they don’t pay. There are several big reasons why the company will probably be willing to pay you off instead of having to go to court.

Here’s another good strategy by another ActiveRain blogger, Russel Ray. He says to write them a letter demanding your money for your claim and also note that you are sending the same letter to the state insurance commissioner. He says it gets immediate results.

If you enjoy the game of trying to get paid by insurance companies, go ahead and buy one of these policies. But if you’re like me, when I have a problem, I just want it fixed and I don’t want to worry about being ripped off. I would just take that money and start your own reserve fund. Make monthly payments to it just as if you were having to pay a condo HOA fee.

Also, use a site such as Angies List or Kudzu to put together a list of good service people who you can call when something breaks down.

If you don’t have a few thousand dollars available to cover an immediate emergency, then you might want to reconsider whether or not you should actually be buying a home right now.

Is your real estate agent pushing you to use a specific lender? Maybe they even make it convenient by having an application all ready to go for you.

You might just want to cut to the chase and ask them point blank whether or not they are getting paid any money for originating your loan.

There’s a lender who is famous for his very blunt, in your face radio commercials about no closing costs loans. He acts like he’s the only one who can do such loans. It’s just a big gimmick to make the phones ring.

He had a few commercials where he was warning people that they shouldn’t rely on their real estate agent for a lender recommendation. He said that you probably wouldn’t use a lender recommended by a taxi driver. Would you? He made it sound like real estate agents were getting paid for recommending their preferred lenders, especially those who charge those evil and “unnecessary” closing costs.

I got word that he is now getting ready to try to make it worthwhile for real estate agents to send him referrals. He’s actually setting up a system that will do exactly what he was warning everyone about in his commercials.

He’s staying within the legal limits of RESPA by allowing agents to be “loan originators” by doing 6 basic minimal services in the origination of a loan. It’s very simple stuff that will take an agent a few minutes to complete. Then the agent just passes the file on to the real originator or processor and the process continues as normal. Hopefully the real originator will have the experience in the mortgage market and be able to counsel the client on the best program for their individual case.

I really don’t think many real estate agents can stay on top of both the real estate market and the mortgage market. Fortunately, I don’t think their intention is to have “double agents”. But their intention seems to be to set up a system to entice agents to steer business their way. Pretty much what the RESPA laws were meant to inhibit.

There’s nothing really wrong with it but you have to wonder about what will be sacrificed in order to have enough money to pay another person in the loop. Will they have to have higher rates? Maybe less service? I’m sure they’ll be able to make it all up on volume. Yea, that’s the ticket. Volume.

So just be aware of this. It’s always good to know everyone’s motivations.