Residential service contracts, also known as home warranties, help homeowners cover the cost of repairing or replacing major home systems and appliances that break down from normal wear and tear. When a covered item fails, the warranty provider arranges for a repair technician and pays for the service, minus a set service call fee.
In this guide, we’ll explain how residential service contracts work, what they typically cover, and how much they cost. We’ll also share our recommendations for top home warranty companies.
Did You Know?
- In the last 30 days, more than 2,500 people bought home warranties from the above providers. Liberty Home Guard is our most popular provider, with 55% of buyers choosing to cover their homes with a plan from the company.
What Is a Residential Service Contract?
A residential service contract is a policy that states a company will cover a homeowner’s repair and replacement costs for covered home systems and appliances that face mechanical breakdowns resulting from normal wear and tear. This service contract is optional for homeowners and is frequently called a home warranty or home service contract. It is different from homeowners insurance or manufacturer warranties.
The term residential service contract is commonly used in Texas. It is defined as a service where, for a fee and for a specified period, a company agrees to repair or replace covered appliances or systems in a residential property. Texas real estate contracts also have a clause where home sellers can specify how much they will pay toward the buyer’s purchase of a home warranty contract if they agree to pay for all or part of the contract as part of the negotiation process.
When Can I Purchase a Residential Service Contract?
Most home warranty companies allow you to purchase a contract at any time during homeownership. However, sellers may find that including a home warranty improves the value of their home, and buyers may experience increased peace of mind knowing that they may not need to pay for repairs or replacements in their new home. Thus, home warranties are often part of real estate transactions.
What’s Covered Under a Residential Service Contract?
Covered items typically fall into one of three categories: home appliances, major systems, and add-ons. Here’s what’s commonly covered under a residential service contract.
- Air conditioning
- Built-in microwave
- Ceiling fans
- Central vacuum
- Clothes washer/dryer
- Cooktop
- Dishwasher
- Ductwork
- Electrical system
- Garbage disposal
- Heating system
- Kitchen refrigerator
- Oven
- Plumbing system
- Range
- Stove
- Water heater
Add-ons are optional extras that don’t receive coverage under standard contracts, but you can pay an extra fee to have these items covered. Common add-ons include your pool, spa, an additional refrigerator, roof leaks, well pump, sump pump, septic tank, alarm system, and guest units.
What Doesn’t a Residential Service Contract Cover?
While most home systems and appliances are covered under a residential service contract, certain features of a home don’t receive coverage, such as:
- Ornamental fountains
- Sprinkler systems
- Window air conditioning units
- Windows, walls, and doors
It’s also important to note the types of damage that home warranties don’t cover. If a covered appliance or system suffers from one of the following types of damage, you’ll typically be responsible for the full cost of repairing or replacing it:
- Damage from accidents or misuse
- Improper installation, modification, or repairs
- Insufficient maintenance
- Preexisting conditions (known or unknown)
- Rust, corrosion, and sediment
Many residential service contracts cover similar items and types of damage, but it’s important to read your contract before signing up for coverage so you understand what exactly is and isn’t covered. Patrick Grayson, an associated with Paramount Property Buyers, a real-estate business based in Indianapolis, suggests the following:
“When shopping for a home warranty, consider the coverage that each company offers and make sure it fits your needs. Some companies may offer more coverage than others, so make sure to compare all your options.”
How Long Does a Re
Most service contracts last for 12 months. This annual coverage term is standard across the industry, though some providers offer multi-year contracts at discounted rates for customers who prefer long-term protection and predictable pricing. Multi-year plans can be more cost-effective and often include added perks, including free months of service.
After the initial contract period, most home warranty providers offer the option to renew coverage each year. Some companies even auto-renew unless you cancel. Regardless of contract length, most providers impose a waiting period, typically 30 days from the purchase date, before coverage officially begins. Some providers may include a longer waiting period for select systems or appliances, especially if they require additional inspection or documentation. If an appliance or system breaks during this time, you’re responsible for the full cost of the repair or replacement.
How Much Do Residential Service Contracts Cost?
With a residential service contract, you pay two main costs: the premium and the service call fee.
The premium is the amount you pay to keep your contract active, either monthly or annually. The average home warranty costs between $47 and $82 per month or $564–$984 per year, depending on the coverage included. The service call fee is what you pay each time you file a claim and a technician comes to your home. This fee typically falls between $75 and $125 per visit.
Some providers, such as American Home Shield and AFC Home Warranty, allow you to adjust your premium and service call fee. For example, you can choose a higher service fee to reduce your monthly premium, or opt for a lower fee with a slightly higher monthly cost. This flexibility can help you match your plan to your budget.
Most residential service contracts also include coverage caps, which limit how much the provider will pay for repairs or replacements. Annual payout limits usually range from $10,000–$25,000, and there may include per-item caps for specific systems or appliances. For instance, an HVAC system might have a $1,500 cap for the year. If the repair or replacement exceeds this limit, you must cover the remaining cost out-of-pocket.
Your total home warranty cost will vary based on several factors:
- Coverage level: More comprehensive plans with system and appliance protection will cost more than basic coverage.
- Location: Living in an area with higher labor and repair costs may result in higher premiums.
- Payment frequency: Some providers offer a discount for paying premiums annually instead of monthly.
- Contract length: Multi-year plans may come with a lower annual cost.
- Service fee selection: Opting for a higher service fee can reduce your monthly premium and vice versa.
How Do Residential Service Contracts Work?
If you have a residential service contract, your first call should be to your provider when a covered item breaks down from wear and tear damage. You’ll file a claim, and the warranty provider will send contractors to diagnose, repair, or replace the damaged appliance or system. You’ll pay the service call fee directly to the contractor like a co-pay, but if the damage is covered, the provider will pay the remainder of the costs up to the coverage cap.
Residential service contracts are sometimes confused with homeowners insurance or manufacturer’s warranties, but they are separate policies. Homeowners insurance covers damage to a house from natural disasters or theft. A manufacturer’s warranty covers defects in a newly purchased product. Residential service contracts cover major appliances or systems within a home against normal wear and tear.
How To File a Residential Service Contract Claim
The process for submitting a home warranty claim is quite simple and remains more or less the same across the industry.
- Contact your home warranty provider with information about the problem. Most companies offer an online portal or a toll-free number that customers can use to submit claims 24/7, 365 days a year. Keep in mind, however, that this doesn’t mean the company will contact a technician immediately—you must wait until normal business hours to receive service if you submit a claim on nights or weekends.
- The company contacts a local technician who will then schedule an appointment with you. Most home warranty companies have their own network of vetted, qualified technicians, saving you the trouble of having to find a trustworthy contractor. However, companies like AFC Home Warranty allow you to choose your own contractor as long as they are certified, licensed, and bonded.
- The contractor schedules an appointment to come to your home to diagnose the problem. You will pay them the service call fee before they leave your home.
- The provider determines whether the problem is covered by the contract. Sometimes, this can be done over the phone while the contractor is in your home. The provider will need to verify that the broken item is covered and the damage is due to normal wear and tear. If both these conditions are met, you will not be responsible for the repair or replacement costs.
- The provider sends the contractor back to your home to fix the problem. If the contractor doesn’t have a necessary part or if the entire appliance needs to be replaced, the contractor will need to make a separate visit to fix the problem. You’ll pay another service call fee for this visit.
Recommended Residential Service Contract Providers
Below is a quick overview of our recommendations for home warranty companies that offer reliable residential service contracts. These providers stand out for having robust coverage options, flexible pricing, strong customer service, and reputation within the industry.
American Home Shield
American Home Shield stands out for its comprehensive coverage, including protection for preexisting conditions such as rust, corrosion, and sediment damage, which most providers exclude. The company offers generous coverage limits of up to $4,000 for appliances and $5,000 for most home systems, and no caps on plumbing and electrical components. Its highest-tier ShieldPlatinum plan also includes roof-leak coverage, a rare benefit in the industry. For these reasons, American Home Shield is a good choice for homeowners with older homes that require frequent repairs.
Choice Home Warranty
Choice Home Warranty offers budget-friendly home warranty plans, charging under $70 per month for comprehensive coverage. It includes a generous $3,000 cap for most covered repairs, providing solid financial protection for major repairs. The company also backs its repairs with a 90-day guarantee for parts and a 60-day guarantee for labor, which helps you avoid additional costs if a serviced items need additional repairs.
Elite Home Warranty
Elite Home Warranty is a solid choice for homeowners seeking more customizable coverage options. Along with three standard plans, the company offers a “Customize Your Own” option that lets you build your coverage from scratch. You can pair your plan with over 30 add-ons to tailor it to your specific needs. Plans also include a 90-day workmanship guarantee, which is three times the industry standard.
Conclusion
If you’re worried about your home’s key appliances or systems breaking down from wear-and-tear damage, a residential service contract can offer you peace of mind and budget protection. Since these plans vary in cost by company and plan, we recommend getting quotes from at least three home warranty providers before making your choice. Always read the fine print, and choose the coverage that best fits your needs and your budget.
FAQs About Residential Service Contracts
How much is a residential service contract?
A residential service contract requires a monthly premium payment, usually between $47 and $82, or $564 and $984 a year. You’ll also pay a service call fee of between $75 and $125 every time a technician visits your home.
Is a home warranty worth it?
Deciding if a home warranty is worth it will depend on your home, coverage needs, and budget. Even with proper maintenance, appliances and home systems will eventually wear down from regular use. A home warranty helps by covering the repair cost, reducing out-of-pocket expenses for necessary fixes.
Is a home warranty required at closing?
Although a home warranty isn’t required during closing, it can act as both protection for the seller and an enticement for the buyer. The seller is assured that they won’t pay for wear and tear damage during the listing period, and the buyer can rest easy knowing that they won’t have to pay high costs for unforeseen problems with the new house.
Our Rating Methodology
We used a comprehensive rating methodology to assess each home warranty company. Our research process included talking with company representatives, obtaining quotes, analyzing sample contracts, and gathering insights from homeowner surveys and focus groups. We also tested the sign-up and claims process for 11 leading home warranty companies and conducted secret shopping to understand the customer experience.
Using this data, we scored each provider across six key comparison categories essential for selecting a home warranty. Each company received a total score of 100 points, which we converted into a 5-star rating.
Here’s a breakdown of the weighted factors:
- Coverage: This category evaluated the comprehensiveness of each provider’s coverage, including whether plans cover unique items. Providers offering the most coverage and higher annual limits received higher scores. Points were deducted for having long waiting periods or depreciation policies that lowered payouts for aging items.
- Cost: We assessed average monthly prices and service call fees. Providers with pricing at or below industry averages and no additional fees or surcharges earned the most points.
- Trustworthiness: To measure reliability, we reviewed customer ratings on sites such as the Better Business Bureau and Trustpilot. We also checked for National Home Service Contract Association (NHSCA) membership. Higher scores were given to providers with strong customer ratings, long workmanship guarantees, and no ongoing legal issues.
- Plan transparency: We evaluated the clarity and transparency of each provider’s terms, policies, and disclosures, both in contracts and on company websites. Providers with clear and accessible contract details earned higher scores.
- Customer support: This category assessed how responsive and accessible a company’s customer support is, factoring in multiple claims filing options and fast response times. Providers with efficient and helpful customer support received higher scores.
- Flexibility: We awarded higher scores to providers offering a broader range of plan options, an extensive selection of add-ons, the ability to choose your technician, and customer-friendly cancellation policies.
