AHS Warranty Safety Net

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RISMEDIA-NRRE VOL 16-4 April 2000

AHS Warranty Safety Net

By Howard Potter, NRRE Correspondent

t may be the biggest and oldest home warranty company, but Scott Cromie, president of American Home Shield believes you should think of his company first because they are one of the best. “Our success over the years is a result of our record of superior service and customer loyalty.” he says.

Actually, AHS is not just warranties. The company also includes Amerispec, the largest home inspection company in the U.S. and Canada. AHS also sells E & O insurance to the real estate industry. American Home Shield is a division of ServiceMaster, Inc. which also owns other companies such as Merry Maids, Terminex and Tru-Green-ChemLawn.

However you think of it, American Home Shield fills an important place in the real estate process. When a residential property is bought or sold, both sides of the transaction need that added protection to ensure that buyers get what they think they are buying and sellers have protection from after-the-closing expenses that they never anticipated.

Basic home warranty coverage includes heating, plumbing and electrical systems, water heater and range, dishwasher and other major appliances. The annual cost for the average home is about $350 per year. If any of these mechanical units or appliances break down, for whatever reason, AHS will repair or replace the item at no charge to the home owner. The customer does, however, have to pay the contractor service call fee, which is usually $35 to $50.

Everybody wins. The seller doesn?t have to worry about being called on for repairs ? or replacements ? for items in a house he?s already sold. The buyer doesn?t have to be concerned with how old the furnace is or how worn the dishwasher looks. And the agent can promote the warranty as a purchase plus in a tight market and with hesitant prospects.

The average AHS customer files two claims per year. With over two million AHS customer contacts annually, that is a lot of worries and expenses that warranty owners just don’t have. It’s interesting to note that the average of two service experiences per customer per year is consistent throughout the life of the customer relationship. There are generally no more claims during the first year than there are for customers who have been under warranty for six years or 10 years or more.

While many brokers and agents consider home owner warranties as a one-year deal, AHS is just as interested in the renewal as in the initial agreement. Cromie notes, “We make no profit on the first year?s contract. That’s an added incentive for us to work so hard to provide superior service. We want that customer to stay with us year after year.” And it’s working. AHS? warranty contract renewal rate is a resoundingly high 50%. The old adage is still true: it is easier and more profitable to keep a current customer than to get a new one.

When a customer has a claim, the process is simple. The customer calls the AHS service number and explains the problem. The call is taken in one of AHS? four service centers, which process 15,000 calls each day, and within three or four minutes, all of the information is faxed to a contractor in the customer?s area. While AHS works with 13,000 different contractors all across the country, there are roughly 2,000 contractors around the major metro areas who handle the bulk of the business. Clearly it takes a tightly organized operation to manage what Cromie describes as “two million service experiences every year.”

To maintain a close watch on quality control, AHS has an outside organization make between 700 and 800 calls to customers every evening approximately four days after they have phoned in a service problem. Such calls find out when the contractor called them, what type of service he provided and if the problem is now solved to the customer?s satisfaction. This follow-up phone call not only is a check on the quality of contractor service but also enables AHS to quickly identify and correct any service lapses that show up.

AHS is in the process of implementing a system whereby customers can order a warranty over the Internet. The whole contract can be completed online. This means an agent can provide his listing client with a completed contract anywhere there is Internet access and a printer, in the Realtor? office or the client?s home.

AmeriSpec is AHS? home inspection division. It is the largest home inspection agency in the country, and is composed of franchised offices owned by entrepreneurs. Home inspection really represents the other side of home warranties. While warranties are purchased by the seller, home inspections are paid for by buyers, costing approximately $300 to $400. Home inspections ensure that there are no defects or potential problems that the average home owner might overlook in his visit or visits to the property he is planning to buy. After all, prospective buyers are looking at houses from a very different aspect. They are trying to evaluate how the home fits their lifestyles and don’t have a critical eye out for potential problems ? and probably don’t know enough about home construction to recognize them if he were looking.

Home inspections are a much more widely recognized area of risk management than warranties. Approx- imately 50% of homes sold are inspected, while only about 20% of them have warranties. Combined with errors and omissions insurance for Realtors, these three, warranties, inspections and E & O are the risk management bulwarks in the residential real estate marketplace. Crombie points out that AHS, ” with its emphasis on service, works as a partner, not a vendor, with Realtors to provide these three vital layers of risk management for the residential real estate industry.”

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Monday, March 15, 2010