Legal FAQs for REALTORS® — Miscellaneous
Residential Service Contracts

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Legal disclaimer

Will a service contract cover pre-existing conditions? (updated Jan. 1, 2002)

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 preexisting problems, and purchasers who try to get preexisting 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.


What appliances or systems does a service contract cover? (updated Jan. 1, 2002)

Most residential service contracts include repair or replacement coverage for built-in appliances, air conditioning and heating systems, electrical systems, water heaters and plumbing, leaky roofs and termite treatments. Optional coverage is usually available for swimming pools, spas, and clothes washers and dryers.


What is a residential service contract? (updated Jan. 1, 2002)

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.


What is the difference between homeowners insurance and a residential service contract? (Updated May 28, 2014)

A typical homeowners-insurance policy covers loss to the dwelling and its contents as a result of external forces, such as fire, hurricane, hail, or vandalism. The policy excludes loss due to mechanical failure or normal wear and tear.

Conversely, a residential service contract—also known as a home warranty—covers many losses due to mechanical failure and wear and tear. It covers major appliances and systems that 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.


What is the Residential Service Company Act? (updated Jan. 1, 2002)

The Residential Service Company Act (Article 6573b, Vernon's Texas Civil Statutes) has been administered 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.


Legal Disclaimer: The material provided here is for informational purposes only and is not intended and should not be considered as legal advice for your particular matter. You should contact your attorney to obtain advice with respect to any particular issue or problem. Applicability of the legal principles discussed in this material may differ substantially in individual situations.

While the Texas Association of REALTORS® has used reasonable efforts in collecting and preparing materials included here, due to the rapidly changing nature of the real estate marketplace and the law, and our reliance on information provided by outside sources, the Texas Association of REALTORS® makes no representation, warranty, or guarantee of the accuracy or reliability of any information provided here or elsewhere on TexasRealEstate.com. Any legal or other information found here, on TexasRealEstate.com, or at other sites to which we link, should be verified before it is relied upon.

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