(Photo : Photo by Binyamin Mellish)
Homeownership is a central aspect of the American Dream, for latinos and non-lations. In this country, you haven't made it until you have a casa to call your own. Tiny bungalow or a massive 3,000 square foot McMansion - it doesn't matter. If you own your pad, you're going places.
However, when you own, all the things your landlord did - are now YOUR responsibility. From fixing leaky faucets to paying for a $4,000 roof replacement, it's all on you.
However, these enormous bills don't often jive with our financial reality. I mean, c'mon - who among us has four grand lying around to cover a major repair? Not all of us are rich or are willing to forego a social life to save up a maintenance fund.
That's where home warranties come into play. Increasingly, homeowners are relying on them to take the "shock and awe" out of their home repair bills. Below, we'll discuss the rise of the home warranty industry, and talk about states where they've become popular.
What is a home warranty?
Okay - so there's a decent chance you've never heard of a home warranty before. It's not because you're out-of-the-loop - most Americans haven't heard of them, either. According to Rodney Martin, CEO of America's Preferred Home Warranty, only 4% of households have them.
However, as household finances tighten in today's low wage environment, interest in home warranties are rising. So, what is a home warranty, exactly? They're service contracts issued by firms who promise to cover repair/replacement costs for home appliances and systems, in return for a monthly premium.
When anything goes wrong, you call your home warranty firm. After confirming they cover the described issue, they dispatch the appropriate technician to your home. At this point, you pay a small service fee or deductible, usually between $60-$120. The repairperson then fixes the problem, regardless of whether the real cost is $200 or $2,000.
This way, you can avoid getting ambushed by sudden, significant household expenses. If your furnace breaks down, you'll pay as little as $60 out-of-pocket for a repair that could cost THOUSANDS of dollars.
Of course, you're paying a monthly premium as well, but take the long view. The average American spends over $2,000 per year on household maintenance. The average home warranty costs $800 in premiums. If you make five service calls per year, you're spending between $1,100 - $1,400 per year on maintenance.
I don't know about you, but we'd take a 25%-50% reduction in household expenses ANY day of the week!
Home warranties in America are different
If you've moved to America from abroad, the term "home warranty" may confuse you. If you step across the border into the Great White North, it means something fundamentally different. For example, in the Canadian province of Alberta, a "home warranty" refers to a home builder's warranty. These deals cover labor and material defects in newly-built homes for up to ten years. Unlike American home warranties, they do NOT include appliances.
Finally, government intervention in the industry is more pervasive. For instance, the Alberta government, through legislation, defines minimally acceptable coverage by "home warranty" plans. They also require builders to input warranty info into a publicly searchable database.
In America, however, a home warranty, as you already know, refers to service contracts. These cover systems and appliances on any home, regardless of their age. While some states regulate the industry, many others have not.
As you will see below, this influences the availability of home warranties in different parts of the country.
Which states have the best choice for home warranties?
As their popularity in the USA increases, the number of home warranty firms are expanding. However, due to differences in regulation, population, and so forth, selection can vary widely from state-to-state.
For instance, California, a state whose population (39.7 million) exceeds that of 157 other countries, only has 20 home warranty firms. Meanwhile, in sleepy Wyoming, population 572,381, 23 home warranty companies offer their services. Texas has the best selection overall, with a whopping 36 home warranty providers operating within its borders.
What's behind this disparity? Commentators often cite population, but given the California/Wyoming comparison, there's more to it than that. Regulations are more strict in the Golden State, as they compel firms to prove they have considerable liquid assets.
These rigorous requirements scare off firms from seemingly lucrative markets. For instance, New York State, another wealthy jurisdiction with stringent regulations, is only served by 19 home warranty firms.
How can home warranty firms increase their appeal on the coasts?
Despite living in America's most populous states, homeowners lack choice when it comes to home warranties. To improve selection, residents could vote for governments dedicated to slashing unnecessary red tape.
Even in free-wheeling states like Texas, regulatory bodies oversee the industry. When home warranty companies misbehave, Texans can lodge complaints with the Texas Real Estate Commission.
The difference between them and California lies in excessive regulations and their scope. Many of them set out incredibly high liquidity requirements. As a result, only the most wealthiest corporations can afford to offer services in California, hence the low head count (20).
Additionally, places like New York State and California have a higher proportion of residents who live in condos. Unlike traditional home ownership, condo owners share systems like heating/cooling, plumbing, electrical, etc. Their condo board covers these repairs through fees paid each month.
When a condo owner does pay for repairs out-of-pocket, it doesn't amount to much. According to the U.S. Census Bureau, the average condominium resident spent $609 on maintenance in 2011.
It's reasonable to assume most of these expenses were on appliance repair. To expand profits in densely populated stets, home warranty companies should aggressively promote appliance plans. These packages cost much less than comprehensive plans, with many costing less than $30/month.
Home warranties: An industry on the grow
As houses in this country continue to age, Americans are rightly concerned about their integrity. Home warranties are a great solution, as these policies can protect their investment and their finances. It's not hard to see why, as they raise resale values and make maintenance a predictable expense.