Homeowners often learn the hard way that unexpected home repairs can cost thousands of dollars. Aging water and sewer lines are susceptible to breakdowns. The ejector/lift pump or septic system electrical wiring can fail. Mainline stoppages and other issues can pop up unexpectedly.

Many families don’t have extra cash on hand to make costly sewer repairs. That’s why some homeowners purchase home warranty service contracts. With a home warranty coverage plan, they can protect portions of their systems at minimal cost. Home warranty contracts allow homeowners to protect their home, which is often their biggest investment. Additionally, they gain peace of mind, knowing they won’t be solely liable for huge repair or replacement bills.  

From a contractor’s perspective, home warranty work opens up new opportunities. Contractors can increase their work volume without the added expense of advertising and client acquisition costs. These businesses can benefit from an influx of new customers, each with the potential to become repeat customers if the contractor handles the job right. Year-round service calls and referrals provide a consistent flow of work, keeping employees busy and money rolling in.  

Danger of being the intermediary

But before jumping headfirst into home warranty work, contractors should carefully evaluate which companies to work with and develop procedures to streamline services and protect their reputation. 

Daniel LaGarce, CEO of Budget Heating, Cooling and Plumbing in the St. Louis area, has 41 years’ experience in the heating, cooling and plumbing trades. He opened Budget in 2009, and he attributes about 30% of gross sales to warranty work. Budget doesn’t pump septic tanks, but the company performs drain cleaning and repairs and replaces alarms, lift stations and other septic equipment. 

LaGarce says one of the biggest challenges associated with home warranty work is finding your company as the intermediary between the customer and the warranty company. 

“You’re allowing a billion-dollar company to make decisions for the end-user, the consumer. Now, you’re stuck in the middle,” LaGarce says. “Through experience, we developed our own systems to balance the two sides out.” 

For any contractor who does home warranty work, LaGarce recommends brand protection and brand monitoring services. Positive and negative reviews influence consumer shopping decisions for all types of products and services, and a contractor could find themselves the target of a bad review for something out of their control.  

“Even with our company, the negative reviews we have are almost always home warranty, and they’re upset about some sort of noncoverage,” LaGarce says. “The negative reviews are based on decisions we didn’t make.” 

Some homeowners do not take the time to fully familiarize themselves with their home warranty policy. When certain repairs or replacements are not covered, it comes as a shock. They’re upset, they don’t think they should have to pay anything, and they just assume that the contractor is an extension of the warranty company. So the customer leaves the contractor a negative review. Because of this risk to his company’s reputation, LaGarce chooses to partner with only specific home warranty companies. 

“The companies we deal with have a 95% coverage rate, and only 5% of claims aren’t covered,” he says. For the 5% that aren’t covered, it’s typically because the policy is less than a month old so the problem is a preexisting issue, or there’s a design problem or missing part. Sometimes the homeowner disassembles something in the system trying to fix it themselves. This type of claim is automatically denied because the system has been tampered with.”  

Do the research

LaGarce has been performing warranty work for 23 years, nine years with a previous employer and 14 years at Budget Heating, Cooling and Plumbing. Over the years, LaGarce has had the opportunity to provide feedback to home warranty companies that welcome contractor input. Other companies aren’t as receptive or easy to work with, he says.

“Consumers really need to do their research because there’s bad [home warranty] companies out there,” LaGarce says. “There are companies that we’ve had dealings with that look for any reason to deny the claim.” 

Oftentimes, consumers purchase home warranty contracts when they sell their homes. These contracts ensure that the new buyer won’t pester them if something breaks down right after closing. In most cases, the seller’s home warranty can transfer to the buyer. Home warranty contracts range from basic to elaborate, covering one or several systems in a home. The septic contracts generally cover mainline stoppages that can be cleared through an existing access or cleaned out without excavation.  

“If we’re busting up concrete and digging up floors, there’s limitations on policies, and we have to talk to the homeowner,” LaGarce says.  

In addition, home warranties typically cover operational failures of the ejector/lift pump and failures of the septic system electrical wiring, lines, tank and dry (refuse) well due to normal wear and tear. Many service contracts aren’t effective until 30 days after their purchase, so preexisting issues are not covered. Other noncovered services involve drainfields, leach beds, aerator systems and electrical supply lines, upgrading the system to a municipal sewage system, and septic tank pumping. Normal wear and tear is the key to understanding covered versus noncovered services. 

“Let’s say a child flushes a Hot Wheels car — and yes, you’d be surprised by the things we actually pull out — and it causes an obstruction. That’s not a normal product that should go through the septic system,” LaGarce says. “Those types of items would not be covered by a warranty company.” 

To help customers understand their policies, Budget Heating, Cooling and Plumbing devotes a page on its website to home warranty.  

“Anybody who’s going to be in the home warranty trade needs to have a clear understanding of how the policies work. Not only that, they need to have a way of communicating to the homeowner what’s covered and not covered,” LaGarce says.

Getting paid

When a claim is only partially covered, the homeowner becomes responsible for a share of the repair cost. In these situations, Budget uses a formal contract listing a breakdown of the work to be performed and the cost associated with these repairs.    

“We will not even put them on the schedule until that e-signature form has been returned to us,” LaGarce says.

To make it easier for cash-strapped customers, Budget offers financing programs to help cover out-of-pocket expenses. 

LaGarce encourages business owners to do some research and talk with other contractors before signing on with a warranty company. Online forums, professional organizations, and industry groups like Service Nation Alliance can provide information. 

“Find some contractors who do your type of work and ask about the pros and cons of working with [a home warranty company]. We all know which ones are good and which ones are bad,” he says. 

Building the customer base

Home warranty work helps contractors build their customer base — not all at once but over time. 

“Home warranty is not a sprint,” LaGarce says. “You can’t just go in there thinking you’re going to get all this work. It’s a marathon. You’re going to build a customer base year after year.” 

About 70% of home warranty customers renew their annual contracts. The 30% who don’t renew might just turn into retail sales, assuming the contractor handled the job right. Budget has 100,000 names in its customer base, due in part to home warranty work. 

Home warranty partnerships are attractive to contractors looking for steady work and a foot in the door with new customers. Yet, home warranty opportunities can have drawbacks. Some home warranty companies may be slow to pay contractors. Additionally, contractors might find themselves in an uncomfortable position when the customer expects more than the warranty company is offering. For these reasons, contractors should do their homework before partnering with a home warranty company. They should research warranty companies carefully and develop policies and practices to successfully integrate warranty work into their business model.