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Home /  Home Warranty Guides / Residential Service Contracts: What are they?
last_updated_date Last updated: May 16th, 2022

Do You Need A Residential Service Contract?

PUBLISHED: Mar , 11 2022 • 6 MINS READ

Regardless of how carefully you maintain your household systems and equipment, they will ultimately break down due to constant use. The average homeowner spends thousands of dollars repairing and maintaining such equipment every year. A residential service contract can help you avoid these costly repairs, replacements, and out-of-pocket expenses.

residential service contract

Furthermore, if you’re selling property, you can safeguard it with this type of policy when it’s on the market. Later you can also provide this contract to the buyer when you sell the house.

Keep reading to discover more about these contracts, their coverage, pricing, and the industry’s leading service providers.

What is a residential service contract?

A residential service contract, often also known as a home warranty or a home service contract, is a service policy for critical household items. It covers repair and replacement costs of the covered systems and appliances that break down due to normal wear and tear.

When any covered item experiences a malfunction, you can place a service request to get it fixed. Most contracts last for a year, however, some companies offer plans for more extended periods. You can confirm the same while choosing the plan.

Residential Service Contract vs Home Warranty vs Extended Warranty

The differences between these contracts are important to learn before making a purchase. Here are some:

Residential Service Contract/Home Warranty
Extended Warranty
  • A home warranty is another name for the residential service contracts. Cover a range of systems, appliances, and parts.
  • Several different plans are available under these contracts.
  • You need to pay a deductible cost at each service visit.
  • You can buy this contract directly from the company or from third party sites.
  • An extended warranty only protects single devices, mainly appliances.
  • This warranty doesn’t provide coverage for systems.
  • You are required to pay a one-time cost.
  • This warranty can also be purchased from the manufacturer.

Residential Service Contract Coverage

Your residential service contract may cover various systems, appliances, or both. The exact coverage depends on the company and policy you choose. Many companies offer services for systems and appliances irrespective of their age, make, and model. However, you should always check directly with the service provider if you have any questions.

What does a residential service contract cover?

Generally, a contract includes critical home systems and appliances such as:

refrigarator

Dishwasher
refrigarator

Refrigerators
refrigarator

Stoves
refrigarator

Water Heater
Electrical system

Electrical system

You can also get optional add-ons with your base plan at a few extra dollars.

Second-Air-Conditioner

Second Air Conditioner
Swimming-Pools

Pools
Spa

Spa

What does it exclude?

A residential service contract may not cover:

  • Structural issues
  • Design flaws
  • Commercial properties
  • Any pre-existing conditions (known or unknown)
  • Damage caused due to floods, fire, theft, or Acts of God
  • Items failed due to manufacturer defect
  • Services performed without prior approval from the service provider
  • Improper installation
  • Insufficient maintenance

Note: We recommend reading your sample contract carefully before signing up to understand what’s precisely covered.

Residential Service Contract Costs

The total cost of a residential service contract depends on the selected coverage, optional add-ons, type of home, and area of residence. The average cost will run between $300 to $500 annually and $25 to $70 monthly.

If you opt for comprehensive coverage, you are expected to pay anywhere from $400 to $800 annually and $49 to $100 monthly. As for the service fees, they can range from $50 to $125 per visit.

Who Pays For A Residential Service Contract?

Either home buyers or sellers can pay the premiums of the contract. Generally, sellers pay for the first year of the warranty. Since it benefits both parties, sellers get a better chance of closing the deal.

However, if the seller makes an agreement containing a clause that buyers pay for the warranty, they will be obligated to pay.

Who should get a residential service contract?

A residential service contract can be a wise investment for the following groups of people:

  • Home Buyers

    A residential service contract can save the buyers from out-of-pocket expenses due to unexpected breakdowns of major household items. If they arrange such services in advance, buyers feel confident that they have added extra protection to their homes.

    further-reading-scam-iconFor more information, read about the Home buyer’s warranty in detail.

  • Home Sellers

    Selling homes is not a child play. It can be very stressful, so a service contract helps sellers make their property market-ready. With a service contract, sellers can be assured that if anything happens to the devices during the closing, they would not need to pay for it. The company will take care of the issue.

    further-reading-scam-iconIf you’re trying to sell your home, learn how the seller’s warranty can benefit you.

  • Real-Estate Agents

    Realtors can also use the service contracts as marketing tools to prepare their property for the market standards. Such practices make homes attractive to potential customers and assure them that they are finalizing a good deal.

  • Landlords/ Property Managers

    Owning a rental property entails a great deal of work, maintenance, and stress. You have a lot of responsibilities as a property manager, from finding renters to fixing and maintaining the property. At any moment, property managers can acquire a RSC for their property. The contract for a rental property may help you handle much of the upkeep, cost, and stress as a landlord.

    further-reading-scam-iconTo protect your budget, check out the best service contracts available for your rental property.

What To Look Out For When Choosing A Residential Service Contract Company?

You can lookout for the following things while selecting a Residential service contract:

  • Check if the provider you have selected offers services in your area of residence.
  • If the coverage offered by the provider meets your household requirements, go with it.
  • Look at the cost of your selected plan; confirm the overall cost for your services, including optional items and deductibles.
  • Inquire about the company’s technician and contractor network.
  • Read customer reviews of the services provided by the company.
  • Make sure you have seen the fine print, inclusions and exclusions for each of the covered systems and appliances.

Top 3 Companies For Residential Service Contracts

Amongst the various service providers, we have picked the three best companies for you:

Affordable Service Fee
deductible_offer_ico

Discount – $200 Off + 2 Months Free + Free Roof Coverage

ServicePlus Home Warranty

Why we picked it

Because of the high quality of their services, ServicePlus is a preferred home warranty provider. According to them, technicians can be scheduled between 2 – 4 days (weekends and holidays), with emergency services being charged at an additional cost.They also provide discounts and special deals to their customers on a regular basis.

Instantly Responds To Claims
deductible_offer_ico

Discount – $150 Off any plan + Free Roof Coverage ($99 value) + 2 Extra Months For Free.

Select Home Warranty

Why we picked it

Select House Warranty has effectively risen to the top of the home warranty industry since 2012. They may be found in nearly all 50 states. Select’s comparable coverage options, flexible pricing, payment methods, and excellent discounts are some reasons we’ve picked them to our best three lists.

Has Higher Coverage Caps
deductible_offer_ico

Discount – Various Discounts Available On Their Website.

American Home Shield (AHS)

Why we picked it

AHS is our choice since they have been one of the most trusted home warranty businesses for over five decades. Customers like how quick and efficient their services are. Many clients have expressed their satisfaction with the repair service quality. Additionally, they provide extensive coverage caps.

Check out some of the other finest home warranty providers for additional comparisons!

What Are Some Key Clauses Of The Service Agreement?

Every home warranty company makes some clauses to settle any disputes or controversies that may arise out of the agreement. Your service agreement may also contain state-specific details. However, the following are some key service agreement clauses:

coverage_icon

Excluded appliance clause:

All appliances are not covered by your warranty, so read your service agreement carefully before agreeing to the coverage.

coverage_icon

Class Action Waiver:

The consumer who purchased the warranty must file the claim, not someone else. It is not permitted for the customer to do it in a group or in a similar manner.

coverage_icon

Dispute Remedy:

If there is a controversy regarding the agreement between the parties, they can resolve the issue by seeking binding arbitration by one arbitrator administered by the American Arbitration Association

Is A Residential Service Contract Worth It?

A residential service contract may be worth your money if items like HVAC, electrical, plumbing systems, dishwashers, dryers, or any such appliances are prone to malfunctions. A service contract could help you save your hard-earned money that could be wasted on expensive repairs and replacements.

Frequently Asked Questions (FAQs)

Q.

Do I need a residential service contract in Texas ?

A.

In Texas, it is not necessary to purchase a residential service contract. Though, a significant A/C breakdown during the peak summer season in Texas is a perfect reason to buy it. A new system might cost anything from $5k and $20k for a homeowner.

However, if the homeowner purchases an RSA, alongwith the premiums they only be charged a small service call cost. Additionally, if the homebuyer chooses to acquire one during a home purchase, the seller must refund the money at the time of closing.

Q.

When Can I Purchase a Residential Service Contract?

A.

You can purchase the contract anytime. Most people buy it when their manufacturer warranty expires or any major appliances or systems begin to wear out.

Q.

What is the Residential Service Company Act?

A.

The TREC has administered the Residential Service Company Act since 1979. Under article 6573b, Vernon’s Texas Civil Statutes, it provides licenses to residential service companies.

Q.

What is an RSC in real estate?

A.

Residential Service Contract (RSC) refers to a contract in which the company pays for the repair and replacement of specified home equipment.

Q.

Does TREC regulate residential service companies?

A.

The Texas Real Estate Commission used to regulate the residential service companies in Texas. It was responsible for the licensing of RSCs or popularly called home warranty companies. Since 2021, it has been transferred to the Texas Department of Licensing and Regulation.

Q.

How do I complain about my service contract company?

A.

If you wish to file a complaint against your service contract company, you can:

  • File a complaint to your state’s Department of Insurance.
  • File a small claims lawsuit in court.
  • Or file a consumer complaint with BBB.
Q.

Are home service contracts considered insurance?

A.

No, home service contracts are not insurance. Homeowners Insurance covers the structural part of your house and pays you for loss due to fire, hail, theft, collision, or other accidents. The home service contract covers repairs and replacements to interior items of your house.

Q.

How to file a claim with my RSC provider?

A.

To file a claim, you can follow the instructions given in your service agreement. Generally, it’s the same for most, so you need to contact them via a given phone number or place a complaint online. They can schedule an appointment in 24-48 hours.

Q.

Why are appliance repairs so expensive?

A.

Appliance repairs are considered to be expensive because such items have many electronic components, parts, and circuit boards. These parts are costly compared to the mechanical parts.

Q.

Is the home service contract the same as the maintenance agreement I have with my HVAC contractor?

A.

No, home service contract and maintenance agreement are two different services. A home service agreement is a contract that covers repair and replacement costs of household items that break down due to normal wear and tear.

An HVAC maintenance agreement is a legal contract between a company and you. Under this agreement, a scheduled maintenance service is recommended twice a year, during fall and spring.

Q.

How to sell a house with a residential service contract?

A.

When selling a property, a residential service contract might help you close the deal. If you include it with the home, the purchasers will be relieved that they will not be responsible for any unexpected repairs. Depending on the local market circumstances, discuss with your real estate agent about whether you should utilize an RSC for listing coverage or as an incentive to attract buyers. They will understand what is typical for the locality and how to use the contract to negotiate the best potential deal.

Q.

Will RSCs cover pre-existing conditions?

A.

Pre-existing conditions usually are not covered by the residential service contracts. However, some companies like American Home Shield, Choice Home Warranty, or Select provide services for such conditions. It is recommended to read the service contract to know more about inclusions and exclusions carefully.

Q.

How do I cancel a service agreement?

A.

If you wish to cancel your agreement, you can follow the guidelines mentioned in your contract. Usually, you need to contact the company and inform them about the cancellation. Some companies also charge a cancellation fee if you cancel the contract after the waiting period.

Q.

Can I choose a contractor?

A.

Yes, you can choose a contractor of your own only if the company allows it in their terms and conditions. We recommend you check this with the service provider beforehand.

Q.

How Long Do Home Warranties Last?

A.

Generally, home warranties last for a year, after which you can renew the contract. Some providers also offer plans for more extended periods like 13 or 14 months.

Q.

Is a home warranty required at closing?

A.

No, a home warranty is not typically required at closing. However, it can protect sellers during the listing and entice buyers into picking the property.

Top home warranty Companies

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