Q.   What is The Residential Service Company Act?

A.   The Residential Service Company Act (Article 657b, Vernon’s Texas Civil Statuses) has been administrated by the Texas Real Estate Commission since 1979.  It provides for the licensing and regulation of residential service companies who provide residential service contracts, also known as home warranties, to the public.

Q.   What is a Residential Service Contract?

A.   A residential service contract or home warranty is usually purchased when a house sells in the resale market.  A home under warranty may be more attractive to prospective buyers.

It covers major appliances and systems which are in proper operating condition at the time of closing and usually carries a one year service agreement.  It is an agreement on the part of the issuer (the residential service company) to repair or replace certain named components or systems within a home that fail due to normal wear and tear during the contract term.

A service fee (a deductible ranging from $45 to $165) may be charged for each service call, and the homeowner is protected against the costly expense of a major breakdown or multiple breakdowns which can occur when a change of ownership and lifestyle subject the equipment to different usage.

Q.   Is a residential service contract an insurance policy?

A.   No.  Perhaps the best way to draw distinctions is to compare the most common insurance policy written on a house with the typical residential service contract.  The home owner’s policy covers fire, lightning, windstorm, hurricane, hail, explosion, riot, civil commotion, vandalism, and malicious mischief to the entire dwelling and its contents.  It specifically excludes inevitable loss due to “mechanical failure” or “normal wear and tear.”  A residential service contract, on the other hand, covers the inevitable perils of mechanical failure and wear and tear.

Q.   What appliances or systems does a service contract cover?

A.   Most residential service contracts include repair or replacement coverage for built-in appliances, air conditioning and heating systems, electrical systems, water heaters and some plumbing.  Depending on the contract, coverage may also include attic and exhaust fans, septic tanks, leaky roofs, and termite treatments.  Optional coverage is usually available for swimming pools and spas, clothes washers and dryers.

Q.   Will a service contract cover preexisting conditions?

A.   No.  A residential service contract must not be used to market properties with components or systems which do not work or are clearly near the end of their mechanical life.  Every approved contract offered in Texas excludes pre-existing problems, and purchasers who try to get pre-existing problems corrected will always end up dissatisfied.  Any repairs needed prior to closing should be negotiated with the Seller and corrected or repaired prior to the effective date of the home warranty contract.

For additional information on residential service contracts and the companies licensed to offer them in Texas, please contact TREC Enforcement Division, Residential Service Companies, P. O. Box 12188, Austin, Texas  78711-2188;  (512) 465-3960