How to avoid home warranty scams

Purchasing a home warranty plan for your new home is usually a good idea. By doing so, you are protecting your finances from excessive maintenance and home repair bills. However, since so many people choose to purchase a home warranty, there are many companies that use less-than-legal means of getting customers. Home warranty scams are quite common in today’s market. Falling victim to one can be catastrophic in some cases. A savvy homeowner has two good choices in front of them. First, they can opt for one of the best home warranty plans on the market, or they can learn more about home warranty scams and avoid them altogether. In this article, we are going to provide you with all the information on all the common scams and what you may need to do to avoid them.

Most common home warranty scams

While every moving scam is unique in a way, they usually fall into one of the following categories:

• “Ponzi” scheme
• Final notice scam
• Companies with fake papers
• Phishing scam
• Misrepresentation

Until recently, most homeowners believed that every home warranty is a scam. There were a lot of bad experiences in the past, after all. However, there are many reasons why you may need a home warranty plan. It all depends on your situation, of course. The main reason why people may consider home warranties a scam is the fact that these contracts are usually full of “loopholes”. Meaning that you don’t exactly get what you think you’re paying for. But if you take the time to actually read the contract, ask for clarifications, and consider the purchase carefully, a home warranty plan can be a great asset. It is all about knowing what you are going to get.

All of that, of course, applies if you are dealing with honest home warranty companies. And you will not know the difference unless you are aware of how scammers operate. Most home warranty scams fall under the abovementioned four categories. It is in your best interest to get familiar with them.

“Ponzi” scheme

A Ponzi scheme is when a company enrolls new buyers in order to pay older ones with the money they get from the new ones. It got its name from Italian businessman Charles Ponzi. The way it works is that new buyers get numerous assurances that they will get incredible discounts if they refer new people. But the problem is that this does not really work in practice. As soon as the new buyers cannot be found, the company will stop making payments to the old buyers.

This scam features extremely favorable home warranty terms, more so if the customer refers another customer. The customers may also get some “freebies” such as free cleaning and maintaining kitchen appliances service.  It can be extremely hard to spot, as the company will usually appear to be a legitimate one. The only way you can protect yourself from these schemes is to carefully research the company in question. Even if the company strongly suggests that the offer is “time-sensitive”, you should not take the bait. Do your research properly before signing anything. That is always the best thing to do.

Final notice scam

Another very common home warranty scam is the so-called “Final notice” scam. What happens is that the home warranty company sends a letter that threatens the loss of coverage due to one reason or another. Most of the time, these letters come in a situation that is already stressful, and they might appear to be originating from another source (e.g. mortgage lender). The letter states that your home warranty was voided due to some error on your part (or due to a misunderstanding of home warranty coverages) and that your bank now has the contract. Meaning that you don’t get to benefit from your home warranty plan anymore.

Additionally, these are usually pink letters, making them look important and official. Most of the time, the letters will include strong legal jargon, aimed to induce the feeling of panic in the recipient. What you need to do is remain calm and not answer any of these letters. A legitimate home warranty company would not send you such letters, they would contact you via standard means.

Companies with fake papers

Perhaps the most common of all the home warranty scams are the companies that appear out of “nowhere”, sell a lot of home warranty plans, and then disappear without a trace. This usually happens over a period of several months. Some companies build quite a good reputation in that time, only to cash in later. Needless to say, this scam is the most dangerous one as you will basically be paying for absolutely nothing.

Luckily, there is a rather easy way to recognize such companies. To “pull off” such a scam, a company usually cannot be licensed by the proper authorities. Therefore, all you need to do is check their credentials. However, there are exceptions and you need to be aware of them. It is usually best to stay clear of any companies without a decent “track record”, no matter how great their offers might be. While you may be doing a disservice to some of the honest up-and-coming home warranty companies, it is usually better to be safe than sorry.

Phishing scam

You may already be familiar with the term “Phishing”, as it is a quite common online scam. It has made its way to home warranties and is one of the most common home warranty scams as well. The way this particular scam works is through flat-out lies. The homeowner gets a call from an agent of “Random company name here“, claiming to be a representative. They offer amazing deals and promise even more, but you need to act quickly, as this offer is only for the duration of this call! That is the usual way that these scammers operate, but they might offer you to call them back as well.

The end goal of a phishing scam is to get your credit card details or to dupe you to bear false credit card charges. And this scam actually works more than you would think so. With today’s economy being what it is, most homeowners are looking for “breaks”. And when a pleasant, smooth-talking, person tells you that you can get a home warranty plan for almost half the price, you may think that your break has finally come. But it is all an illusion and a very devious scam.

Misrepresentation

This one is maybe less of a scam but more of dubious business practice. What some home warranty companies do is misdirect their customers with elaborate wording. Their marketing leads the customers to believe that all of their items are covered, when in fact there is a significant portion of belongings that the home warranty will not cover.

An example of this is when a company says that they cover any item regardless of its age. But when you look at the fine print, there is an additional clause. If an item has a “pre-existing” condition, it is excluded from the home warranty plan. These companies are quick to point out the benefits of home warranty plans but choose to omit quite a few details. The companies that utilize this tactic usually have excellent reviews across the board. Because they pay for those reviews. You may be thinking that you are dealing with an amazing home warranty company, not even bothering to read the contract in full, only to realize that you have been scammed.

How to avoid home warranty scams

There are many things that a savvy homeowner can do to avoid falling victim to a home warranty scam. First, you will want to make sure that the company in question is licensed to operate in your state. Second, verify that they have a membership with all the prominent industry authorities. After that, you will want to check for any coverage nuances, such as coverage limits, exclusions, inclusions, components, etc.

Before you sign anything, make sure to do a detailed cost breakup where you will figure out if there are any “hidden” costs. Lastly, you will want to verify the cancellation procedure, as well as the duration of the plan you are considering purchasing.

Furthermore, you will want to read as many reviews as you can. Augment these reviews with personal referrals if you can. Try to limit your review hunt to recognized sites, such as the Better Business Bureau and the like. Make sure that you read both the good and the bad reviews, as that will provide you with the complete picture and help you avoid any home warranty scams.

Purchasing a home warranty plan might be the best investment that a new homeowner can make. But you need to be very careful and spend quite a bit of time on research. For more information on all the top home warranty companies, as well as more information on home warranties themselves, simply browse and explore the Consumer Opinion Guide. We are there to help you purchase a home warranty in a much safer and easier way!