Home Warranties Called 'Lousy Deals'

In a recent -- and unusually puffy -- puff piece in a pay-to-play real estate publication, two agents sung the praises of home warranties. But in truth, home warranties are not warranties at all. They're service contracts.

And if you're thinking of buying a house that comes with one, you're likely better off asking the seller to credit you with the cost of the warranty at settlement.

My own experience with a warranty was abysmal. I knew what I was getting into, figuring that at worst, I'd be out a couple hundred bucks to replace my dying double oven. But I was not prepared for the runaround: appointment after appointment after appointment as technicians tried to fix it, then ordered parts that didn't fit or didn't work. And after every visit, I was put at the end of the line for the next time.

Finally, after several months of being without my oven, the warranty company paid to replace it. Sort of. They only paid part of the replacement cost, I could only choose a model from the company's list (which didn't include my brand) and I had to buy it at the company's store.

Elsewhere, a homeowner in Florida had an issue with the same company. Her refrigerator stopped working, but the outfit wouldn't replace it. After months of "a lot of screaming and hollering at people," they paid her only a portion of the money she thought she would get to buy another machine. Her overall experience: "It was terrible," she told me.

Unfortunately, we are not alone. According to research by Consumers' Checkbook, an independent nonprofit that rates services and businesses, "tens of thousands" of dissatisfied customers gripe to consumer agencies every year. Complaints include denied claims, service taking too long to schedule and repairs performed incorrectly.

Over the last three years, the largest warranty company has been the subject of nearly 28,000 complaints to the Better Business Bureau. Another firm -- which agreed to pay nearly $800,000 settle a suit with New Jersey when the state accused it of deception in denying claims -- is the subject of 10,000 claims.

Started in 1974, Consumers' Checkbook surveys consumers about vendors and service providers, then publishes its findings and advice in magazines and online. It started in Washington, D.C., and additional editions are now published in Boston, Chicago, San Francisco and a few other locales.

Every few years, Checkbook takes on home warranties and the companies that offer them. "For decades we have urged consumers not to buy home warranties," it noted in a February newsletter, its latest foray into the topic. "These plans are typically terrible deals for most buyers."

Checkbook advises people to think of these contracts as insurance policies. Insurance is designed for catastrophic events like fires or floods: events you can't recover from on your own. Replacing a dishwasher or furnace may be unpleasant and somewhat expensive, but for most homeowners, it's not a financial disaster. And paying out-of-pocket is often less expensive than a warranty.

Warranties are "actually quite expensive," Checkbook says. The home's seller usually pays for the first year of coverage, but if you renew, you'll likely pay a monthly premium ranging from $25 to $80. Moreover, even in the initial "free" year of coverage, there's a fee of $75 to $150 for the initial service call on each claim. And if the appliance is too costly to fix, you're probably not going to be reimbursed for the full replacement cost.

Then there's the "gotchas" -- too many "fine-print exclusions," as Checkbook calls them, to mention. But here's a few: One plan excludes damage to your oven if it occurred during the self-cleaning cycle. Water heaters are usually not covered, nor are window air conditioners, humidifiers, garage doors and stand-alone microwaves. Some companies demand records to prove you kept up with the manufacturer's recommend maintenance.

On top of this, the warranty company selects the repair firm. And even though these outfits boast about the quality contractors they hire, every contract Checkbook examined said the warranty company was "not responsible for the work they do."

When the publication randomly selected 20 HVAC contractors that have received its top rating for quality, it found that not one of them participated in a home-warranty program. Indeed, many contractors overwhelmingly disdained them: "They deny lots of claims, and then I got blamed for it" was a common complaint from repair services that had partnered with warranty programs in the past.

No wonder warranties seem to be money machines. In fact, Checkbook found one warranty firm that laid out just 57 cents to cover claims for every dollar it took in -- and it claims 2.2 million contracts nationwide. You do the math.

With all this in mind, Checkbook says homebuyers would do better to find out what the seller is paying for the warranty and ask for a credit in that amount at closing. That way, you can use those funds to cover future problems.

If you must have coverage, read the contract carefully to determine exactly what's covered, the limits of what the company will pay, and what fees you will be charged for service. While you're at it, check out the company's complaint history and reviews.

Says Checkbook: "Since these companies garner so many serious complaints, there's a good chance you'll change your mind about buying a home warranty in the first place."

You've undoubtedly heard of the plight of the nation's youngest congressman, 26-year-old Rep. Maxwell Frost of Florida, who was denied an apartment lease in Washington, D.C., due to his credit. Unfortunately, he isn't alone: Millions of would-be renters across the country can't get approved.

Even though rents have stabilized in some markets, and even dropped a bit in others, many tenants either don't make enough money to pay what landlords are asking or don't meet the credit qualifications.

Conventional wisdom says you shouldn't spend more than 30% of your income to put a roof over your head, including rent (or a mortgage payment) and utilities. Spending more than that classifies you as "housing cost-burdened." According to the National Low Income Housing Coalition, 47% of low-income renter households fall in that category.

Even in such a difficult market, there are ways to improve your chances of finding an apartment. One is to shop when the market is slow. Another is to get your credit in order.

The best time to move is in the winter, says David Bitton, co-founder of DoorLoop, a property management software company headquartered in Miami. Rental rates are lowest between October and April, he reports, with the best deals being offered in January and February.

"Fewer people move during this time of year," Bitton, a property manager himself, told me. "They're busy with the holidays, the weather isn't favorable and schools are still in session. As a result, property owners tend to reduce their rates, and moving companies and storage facilities run promotions."

If you're apartment-hunting right now, you missed that window, but there may still be some deals left. And if you have a longer-term outlook, there's plenty you can do to set yourself up for success next fall.

The first step is the same whether you want to rent or buy: Establish credit and use it wisely. Pay your bills on time and don't use more than 30% of your total available credit. These steps should help you earn a higher credit score, which Bitton says should be at least 650.

If you already have credit, check your record for errors. If you find any, work to have them corrected or removed. This could take several months, so be diligent and forceful; you must be your own advocate.

Next, start your search long before you plan to move, so that when the time comes, you'll know exactly what you want and where to find it.

To begin the process, research rental rates in your area of choice. Doing your homework now will tell you whether you are getting a good deal later. "Knowledge is power if you want to negotiate for the best prices," Bitton says.

Make sure you set a rental budget. You want to be able to live comfortably and enjoy your new place, so try not to exceed the 30% threshold mentioned above.

"Don't make the mistake of overestimating" what you can afford, Bitton says, adding that as a rule of thumb, your monthly income should be at least three times your rent.

A big part of what you'll pay will be determined by the amenities the building or community offers. Obviously, places with pools, workout facilities, covered parking and the like are going to be more expensive. But interior features such as walk-in closets, fancy appliances and hardwood floors will also cost more.

Realize, too, that many landlords these days charge for -- or pass along the costs of -- practically everything. So along with utilities, account for such recurring costs as trash pickup, cable and even pest control in your budget. Some places even charge an administrative fee just to process your rent payments.

When preparing to negotiate a lease, find out what the rents are in comparable properties. You'll strengthen your position considerably when you are armed with this information. Then, tell the landlord why you'll make a great tenant: You pay your bills on time, you have a good credit score and you are fully employed.

The landlord still might not budge on the rent. But if your negotiation is successful, Bitton says it's possible to knock a few hundred bucks off your annual rent -- or even thousands. It all depends on the local market, the property's condition and the landlord's willingness to bargain.

It's a good idea to set a target date for moving in as far in advance as possible. After all, you'll likely need a few days off from work for the move, plus time to arrange for a moving company (or enlist friends to help).

Start looking at places at least 60 days before you want to move, Bitton advises, adding: "I also recommend starting your search on the first weekend of the month. That's when fewer people are looking for apartments, and there's less competition."

When you show up at the rental office, come prepared. Bring your ID, bank statements or pay stubs showing your income, recommendations from previous landlords, credit card bills showing punctual payments and low (or no) balances -- anything that will put you in the best possible light.

Finally, while tattered jeans may be in fashion these days, leave them in your closet. A business suit isn't necessary, but do dress presentably.

"You must make an excellent first impression," Bitton says. "You want them to feel you'll be a reliable and responsible tenant."

Bathrooms are receiving a lot of attention from homeowners who are staying put rather than braving a housing market beset by high prices and climbing mortgage rates.

Last year, according to one major supplier, sales revenue from vanities with countertops grew 27%. Sales of soaking and jetted tubs were up 22%, and sales of tub and shower surrounds grew 20% -- even while prices of those products were up roughly 20%.

Hopefully, owners who chose to remodel are enjoying their new spa-like retreats. Because if they went to all that trouble so their places would sell for more, they likely won't come out ahead.

Actually, you won't come out ahead on any of the 34 different remodeling projects covered in a new report from Today's Homeowner, a media company based in Mobile, Alabama. You'll only get back 60 cents on the dollar for a midrange bathroom remodel.

In hard dollars and cents, if you spent $15,737 to update a 35-square-foot bathroom with a new tub, vanity, toilet, lighted medicine cabinet, tile floor and wallpaper, only $9,500 of your eventual selling price can be attributed to the remodel.

You'd do a tad better by spending big bucks for an upscale bathroom addition, according to the research. It will cost $74,882 to add a 100-square-foot bath with a high-end soaking tub, shower, stone double vanity, separate commode area and in-floor heating. But when you sell, just 64% of that -- $48,020 -- will be recovered.

You'd do even better by making a bathroom in your house wheelchair-accessible, with wider doors and an accessible toilet and shower, along with various cosmetic improvements. Here, the cost would run $16,554, but you'd get back $13,000 -- 78% of your outlay -- when you sell.

There are all kinds of surveys like this one. The trade journal Remodeling has one, the National Association of Realtors has another, and so does Modernize.com. But they rarely agree on which home projects are worth the time, expense and hassle.

The differences, basically, rest in their methodology. While some surveys rely heavily on the opinions of local realty pros, the Today's Homeowner study took a "very granular" approach to both sides of the equation, says researcher Elizabeth Thibodeau, whose firm, Three Ships, conducted the study on behalf of the media company.

On the cost side, researchers built a data set based on discussions with suppliers, who were then vetted by contractors. And on the value side, they combed through 70,000 Redfin listings in 1,300 cities, looking for a number of geo-specific factors.

Of course, just as all real estate is local, so, too, are all remodeling projects. The cost-vs.-value figures mentioned above are all national averages, meaning that some undertakings do better on the local level -- and some do worse.

For example, replacing a garage door was the only project with a 100% payback on the national level in the Today's Homeowner study. But do that in San Francisco and you'll get back 180% of the cost when you sell.

Nationally, a screened-in porch nets only 92 cents on the dollar. But add one in Honolulu and your return will be 182%. (In decidedly colder Cleveland, your return will be just 72%.)

Similarly, replacing vinyl siding, a net 91% expense nationally, is worth 140% in Seattle, according to the study, but just 83% in El Paso.

The research also found some interesting anomalies. For one thing, the least expensive improvements tended to offer the greatest returns. Take that garage door again. The cost, a little over $2,000, had the same return, at least nationally. Replacing your windows, adding a concrete patio, installing hardwood floors and replacing your gutters also did fairly well.

On the flip side, finishing a basement had the worst ROI of any of the projects covered. The cost nationally was estimated at nearly $50,000, but the price gain at sale was just $11,300 -- a measly 22%. Other big-ticket improvements such as remodeling a kitchen did twice as well, but still only earned back about 53%.

Another surprise, at least on a national basis, was the return on adding a backyard swimming pool.

The conventional wisdom is that pools are a poor investment: one that turns off many buyers who don't want the maintenance, hassle or cost. But the research found that an in-ground pool that cost $46,802 coincided with an extra selling price of $42,150 -- a 90% return.

Also, while replacing your old, worn-out appliances is always good for living more comfortably, you can expect to get back 74 cents on every dollar you spend. If you're redoing your kitchen, stay away from the more costly counters: The net on both quartz and granite is only 62%.

Finally, homeowners who are about to put their places on the market would do well to invest in their homes' exteriors: All seven projects with an ROI exceeding 90% in the survey were outside jobs, including siding, roof and gutter replacements.