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Home /  Home Warranty Guides / Who Regulates Home Warranty Companies In Texas And How?
last_updated_date Last updated: September 29th, 2020

Who Regulates Home Warranty Companies In Texas And How?

Ever since the beginning of the home warranty industry, many customers have been scammed. Today, Texas home warranty companies are being regulated to protect customers from fraud, malpractice, or other offenses. But the question is, who regulates home warranty companies in Texas?

Well, this article will break it for you! Here, we will tell you who regulates the companies and lots more about regulation in the state. But first, let’s quickly learn if home warranty regulations are the same as home insurance regulations.

Home Warranty Regulation VS Home Insurance Regulation

Home warranty regulation is often considered to be the same as home insurance regulation. But in reality, they are not the same.

Home Insurance Regulation Home Warranty Regulation
Regulated by the Federal Insurance Office at the Department of Treasury, National Association of Insurance Commissioners, and the Financial Stability Oversight Council. Regulated by federal and state organizations. The states have the flexibility to regulate warranty companies under their jurisdiction while strictly adhering to the federal law.
Regulatory bodies make sure that insurance companies have the financial ability to pay claims. Regulatory bodies are responsible for licensing and enforcement of state laws.

Who Regulates Home Warranty Companies In Texas?

In Texas, the department that regulates home warranty companies is known as the Texas Real Estate Commission (TREC). It is responsible for licensing of Residential Service Companies (RSCs) or popularly known as home warranty companies.

The Texas Real Estate Commission regulates the residential service contracts by adopting amendments under “Texas Occupations Code Chapter 1303 Residential Service Company act,” while strictly following the federal laws.

What Is The Texas Real Estate Commission?

The Texas Real Estate Commission was established in 1949 under the Texas Legislature to safeguard customers in matters concerning real property transactions and valuations. TREC shares resources and staff members with the Texas Appraiser Licensing and Certification Board (TALCB), an independent TREC subdivision. TALCAB was established in 1991 when the federal law demanded increased regulation of appraisals.

Today, TREC and TALCB administer home warranties, real property appraisals, real estate brokerage, inspections, timeshare, and right-of-way services. TREC provides licensing, regulation, and enforcement of state laws and complaint investigation services in Texas.

More About Home Warranty Regulation In Texas

According to the Chapter 1303, a residential service contract is nothing but an agreement under which a company undertakes a repair, or replace all or any part or component of an appliance or a system, in exchange for a fee.

The appliances and systems include refrigerator, dishwasher, plumbing, electrical, or heating, systems, air-conditioning system, etc. of a residential property.

However, there are certain exclusions under the definition of a residential service contract. Some of them include:

  • A service contract or maintenance agreement offered for sale, sold or issued by a merchant or manufacturer
  • A service contract under which a merchant or manufacturer undertakes to repair, maintain, or replace a part of a product or entire product, including an appliance, or a plumbing, electrical, heating, or cooling system, or a structural component of a residential property
  • A service contract under which a merchant or manufacturer undertakes to repair, replace, or maintain an appliance or system that was installed by him or her in residence or building

Service Contracts That Are Not Regulated By TREC

Based on RSC’s definition and its exclusions in Chapter 1303, TREC does not regulate the Texas Insurance Code defined home warranty insurance. It also does not regulate residential service contracts that took effect before August 28, 1979 and contracts included in the original price for a product or service, or free warranties.

Some other types of contracts that TREC does not regulate include:

  1. Chapter 1303 does not usually apply to commercial establishments warranties as they do not include any residential property. It also does not hold good for the performance assurance given by (i) manufacturers or sellers of systems, appliances, or parts of a residential property or (ii) residential builders.
  2. Chapter 1303 does not hold good for maintenance or service agreements for the products or services sold by a manufacturer. However, note that under the laws of TREC, the manufacturer’s contract’s exclusion will be applied even if the manufacturer asks for an extra fee for the service plan.
  3. Chapter 1303 does not apply to service or maintenance agreements sold by a merchant that installs the product in question. Unlike service contracts regulated by TDLR, the exclusion for merchant contracts under TREC’s laws arguably applies even if the merchant charges an additional fee for its service plan.
  4. Chapter 1303 does not hold good for service contracts, or guarantees to repair a system, appliance, or part provided, (i) the user services replace, repairs, or sells the product before or at the time the contract, or guarantee is issued, and (ii) they are issued by a professional who is not a part of the residential service industry.
  5. Chapter 1303 does not hold good for contracts that offer monetary compensation to customers. That is because such contracts do more than a repair, replace, or maintain the product in question. Chapter 1303 also includes no express authorization, letting indemnification to purchasers.

Who Should Be Licensed By TREC?

Normally, any company or individual who administers or issues a home warranty in Texas should be licensed by TREC as a residential service company. However, Chapter 1303’s certain provisions exempt some persons or companies from having a TREC license.

For instance, the agents and employees of manufacturers or merchants do not require a TREC license, provided the manufacturer or merchant is itself exempted from TREC regulation.

Who Are Allowed To Sell Service Contracts By TREC?

Besides exempting some people from having a TREC license, Chapter 1303 also limits the individual category allowed to sell residential service contracts.

Individuals

Licensed individuals in Texas like a real estate broker, real estate salesperson, insurance agent, or mobile home dealer may sell home warranty contracts, provided they are issued by a licensed Residential Service Company.

An Employee

Employees of a licensed RSC can sell contracts issued by their company without having an individual TREC license. Moreover, since an employee is an authorized individual, the employee can also provide and administer home warranties for their employer.

The Authorized Representative

Authorized representatives of a licensed RSC can issue and administer a residential service contract without holding an individual TREC license. However, they cannot sell a service contract unless they fall within an exception included in Chapter 1303.

Note – TREC’s rules define what it means to a residential service company’s employee, including a requirement that an employer has the authority to direct and monitor the employee’s performance.

TREC Requirements For Obtaining License

A company or person seeking a TREC license must submit an application and pay a fee. The application should include documents listed in Texas Occupations Code Section 1303.103. TREC will review the license application and approve or disapprove it within the timeline defined in Texas Occupations Code Section 1303.

  • If TREC denies the application, an applicant can appeal that decision according to the Texas Occupations Code Section 1303 provision
  • If TREC approves and issues a license, it will remain in effect as long as the license holder adheres to the provisions of Chapter 1303. If the license holder fails to comply with Chapter 1303, the license will be revoked, suspended, or terminated

How Can Residential Service Companies Comply With TREC Regulations?

A Residential Service Company must adhere to the financial requirements specified by Chapter 1303. The requirements would help to ensure that a company is capable of meeting its obligations under its contracts.

Besides financial requirements, a Residential Service Company must follow the listed under Chapter 1303:

  • Submit a mid-year report
  • Submit an annual report
  • Provide prior notice of changes in company details
  • Submit prior notice of modifications to practices and documents
  • Submit prior notice of changes to prices and discounts and contract charges

What Happens If Companies Fail To Comply With TREC Regulations?

If a Residential Service Company fails to comply with the TREC requirements mentioned above-mentioned, then as per Chapter 1303, TREC can take disciplinary action against the company. TREC can also take action against an RSC in the following circumstances.

  • The company is operating in conflict with its documents filed with TREC
  • The company did not operate in a financially responsible manner
What Actions Does TREC Take Against RSCs?

Chapter 1303 includes provisions that govern the enforcement proceedings against RSCs. Some of them are as listed.

  1. TREC has the authority to temporarily suspend a license and ask injunctive relief in district court.
  2. TREC can take disciplinary hearings against a company. The hearings are subject to the Administrative Procedures Act and held before the State Office of Administrative Hearings.
  3. TREC may impose administrative penalties as per provisions mentioned in the Texas Occupations Code Chapter 1101. Note that the Chapter 1303 caps penalties at $5,000 per violation.
  4. TREC’s regulations include a schedule of penalties ranging from $100 for each violation per day to $5,000 for each violation per day. However, the penalties depend on the regulation in question or statute. The penalties may also be doubled if the RSC has a history of previous violations.
  5. TREC can collect civil penalties in addition to administrative penalties that are agreeable to Texas Occupations Code Section 1303.404. However, the penalty amount cannot exceed $2,500 or $50,000 on average for all similar violations.
  6. The regulatory body can potentially collect an additional $100 penalty per day if a Residential Service Company writes a new business while in Chapter 1303’s violation.

In addition to these penalties and remedies, TREC can impose criminal penalties for violations specified in the Texas Occupations Code Section 1303.406. Some of the violations include (i) willful violations of TREC’s rules or Chapter 1303 or and (ii) providing false information regarding a statement or report required by Chapter 1303.

How Does TREC Resolve Customer Complaints?

The Texas Real Estate Commission resolves customer complaints through the RSC Ombudsman program. TREC established it with the aim to help customers with issues related to Residential Service Companies like claim denials or delays or denials.

Customers can file a complaint through mail or fax. The representative typically responds within 12 to 24 hours. The customers can rely on this program by providing an intermediary between the service company and the customer himself.

With that said, though the Texas Real Estate Commission protects against home warranty frauds, as a customer, you should thoroughly read the contract before buying a home warranty in Texas.

What Should You Look For In A Home Warranty Contract?

Some of the factors which you should look for in a home warranty contract are:

Coverage Options

Converge options vary from one company to another. While some plans cover all components of home devices, others may provide partial protection. Therefore, check what your plan covers and what not before buying a plan.

Cost Of Plans

The cost of plans vary depending on the coverage options. Determine the exact cost of your home warranty plan and service call fee or trade fee. Also, determine if there are any other charges except the premium and the service call fee.

Cancellation Charges

Some companies let you cancel your service contract without any cost, but others may require you to pay a charge. Determine if your provider includes any fee. Also, check if there are any conditions included in the cancellation process.

Transfer Fee

While some home warranty companies in Texas may allow you to transfer your warranty plan, others do not include such provisions. Read the contract and determine if your provider lets you transfer your plan and if any fee is associated with it.

Payment Options

Determine if your provider gives you flexible payment options. That is, check if you can pay the premium monthly, bi-annually, or annually. Also check if you can choose and pay the amount through your preferred payment method.

Options To Choose Technicians

Home warranty companies have a network of licensed technicians who offer high-quality services. While some companies allow you to choose to obtain service from your preferred technician, others may not provide this option.

Limitations Per Item

Some companies pay maximum $1,000 per item, others pay $1,500 throughout the contract period. Determine how much your home warranty company will pay and if there are any conditions included

24/7 Support

Home devices do not pick at time to malfunction. Check if your company provides support 24 hours, 7 days a week, 365 days a year. Also, determine what steps it takes to speed up services in case of emergencies.

Waiting Period

Some companies provide services immediately after the purchase of the policy but others have a waiting period. Check if your company has any waiting period. If yes, determine when the policy will come into effect.

How Does Home Warranty Work?

Home warranty plans come into effect immediately or after 30 days, depending on a company’s policies.

When your home system or appliance breaks, you must first file a claim with your company. The company will first determine whether your plan indeed covers your broken appliance or system. Step 1 – File A Claim Home warranty companies usually have a network of contractors. If your faulty device is covered, the company will assign you a contractor. Or if given an option, you can choose your preferred contractor. Step 2 – Choose A Contractor The contractor will call you and schedule a mutually agreed appointment. He will then visit your home to inspect the faulty appliance or system. On inspecting, the contractor will report the issue to the company. Step 3 – Schedule An Appointment The company will check if your policy covers the issue. If yes, it will ask the contractor to fix the device. If the faulty device is beyond repair or the repair cost is more than the replacement, the company will replace the device. Step 4 – Get The Device Repaired Once the contractor fixes your faulty device, you will be required to pay only a service call fee or trade fee which ranges between $75 to $125 depending on the company. The repair or replacement cost will be borne by the company. Step 5 – Pay A Trade Fee

When Should You Buy A Home Warranty In Texas?

Home warranty plans in Texas can help you save your money spent on repairing or replacing appliances and systems. If you have new home devices, home warranties may not be used since they will be covered under the manufacturer’s warranty.

But you should consider buying a home warranty if you have home devices that are not covered under the manufacturer’s warranty or are 4+ years old. Other situations include:

  • You don’t have a monthly budget for repairs or replacements
  • You don’t have access to licensed and insured technicians
  • You are looking to sell your home
  • You have rental property and want to attract tenants

American Home Shield (AHS)

4.5/ 5
Based on 13,655 Reviews

American Home Shield – Established in 1971, American Home Shield (AHS) is the industry leader in offering niche home warranty plans. The company offers the Appliance Plan, System Plan, Combo Plan, and Build-your-own Plan at competitive prices. It also offers optional coverage but at additional cost.

America’s Preferred Home Warranty (APHW)

4.5/ 5
Based on 820 Reviews

American’s Preferred Home Warranty – The company covers a wide range of appliances and systems at affordable prices. America’s Preferred Home Warranty offers different types of warranties such as condo warranty, townhouse warranty, single-family home warranty, and multi-family units warranty

Amazon Home Warranty

4.5/ 5
Based on 300 Reviews

Amazon Home Warranty – The company provides excellent customer support at affordable prices. It offers three plans, namely, System Plan, Appliance Plan, and Combo Plan. It also offers additional coverage options to help homeowners protect devices that are not covered under its standard plans.


Note that TREC licenses the above-listed companies.

Closing Thoughts

Purchasing home warranties from regulated companies can protect you from any fraud and give you peace of mind. If you haven’t purchased a home warranty yet, quickly get a free quote from leading providers and stay protected.

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