What is a residential service contract?

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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 $35 to $125) 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.

Source: TAR

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