New homeowners are often encouraged to sign up for a home warranty. Home warranties ensure that repairs and maintenance are taken care of in a timely manner. Without a home warranty, the homeowner may not be able to lay out the money for sudden repairs when necessary.
But as with many types of warranties and insurance, there are a fair amount of scams. Be wary of home warranty scams – they are not always easy to identify.
While some scammers are fairly obvious, others will present with the following red flags
The company is new
Of course, every company needs to start somewhere. The fact that a home warranty company is new does not indicate that it is a scam. However, scam companies will close down a year or two after they are established, without having to pay out many or all claims. They don’t refund customers and all your premiums are lost.
If a company is less than a year old, do some solid research into it. Check out who the executives are. Find them on LinkedIn and other platforms. Scam companies will have fake executives who have no real history on these platforms as they do not really exist.
There is litigation against them
One relatively significant red flag is that there is litigation against the company. There are lawsuits in progress, or at the very least legal complaints. Again, this does not mean the company is a scam. It could be that they have made certain mistakes or they are actually in the right in this litigation. However, in conjunction with other red flags, litigation is definitely a reason to think twice.
Customers hate them
The first place you should look for information on a company’s legitimacy is the Better Business Bureau (BBB). They vet businesses and can generally be trusted. But don’t stop there. Check out customer reviews on Yelp and ConsumerAffairs. If a lot of customers seem to hate them and have similar complaints, you should rethink your choice. Sometimes, only customers can identify very real problems with service delivery. And sometimes a company that started out legitimate changes hands or is taken over by people with shady intentions.
Their marketing is aggressive and misleading
Scam companies in all industries have something in common – their marketing is very aggressive and misleading. They target older customers who may not be tech savvy enough to do proper online research. They make claims that are too good to be true – until you see the details that make them worthless.
If you have been contacted by a home warranty company that is aggressively seeking your patronage, this is a big red flag.
They cover all states
Most legitimate home warranty companies are somewhat local. They may cover a number of states, but there will be a few that are not included. Servicing the entire country is difficult, due to different regulations and tricky logistics. Check the states that a home warranty company services. Those that are more location specific are probably more legitimate than those which do not specify.
There are too many home warranty scams to simply go with the first attractive choice. Do your research and look out for red flags before settling on an option.