Home Ownership

Understanding Home Warranties

Buying a home is a significant investment, and it is nearly impossible to do without at least a few concerns or uncertainties hanging over your head. What if the appliances break down, for example, or the HVAC system malfunctions shortly after you move in? 

To alleviate some of these worries for buyers and make their homes more attractive to prospective buyers, sellers sometimes offer home warranties as part of their sales packages. Let’s explore what home warranties are, why sellers might choose to offer them, and what you should consider when looking at one.

What Are Home Warranties?

A home warranty is a service contract that covers the repair or replacement of major systems and appliances in a home. Unlike homeowner’s insurance, which primarily protects against unexpected events like fires and natural disasters, a home warranty is designed to address the wear and tear of everyday usage.

Home warranties typically cover items such as:

  • Heating, ventilation, and air conditioning (HVAC) systems
  • Plumbing systems
  • Electrical systems
  • Kitchen appliances (e.g., refrigerator, stove, dishwasher, built-in microwave)
  • Laundry appliances (e.g., washing machine, dryer)
  • Garage door openers
  • Water heaters

Home warranties sometimes also cover additional systems, including things like the roof, septic system, pool filters, pest control and ductwork. Naturally, the more extensive the home warranty, the higher its cost will be.

When a covered system or appliance fails due to normal wear and tear, the homeowner can file a claim with the warranty provider. The provider will then arrange for a service technician to diagnose the problem and depending on their findings, either repair or replace the item. The homeowner is usually responsible only for a service fee, which is a pittance compared to the actual expense of repairing or replacing whatever went wrong.

Why Do Sellers Offer Home Warranties?

Home buyers are free to purchase their own home warranties, but many will ask a seller to pay for the first year – and depending on the real estate market at the time, sellers often offer them as an incentive to buy. While a home warranty can cost over $1,000, many of them are just a few hundred dollars, which can be a bargain when weighed against a buyer’s peace of mind. Other benefits of including home warranties with a property sale include:

  • Competitive Advantage: In a tight real estate market, sellers may use home warranties as a way to attract potential buyers. Offering a warranty can make the listing more appealing and also reassure buyers that they won’t be hit with major repair bills immediately after purchasing the property.
  • Risk Mitigation: A home warranty can offer sellers some security, too. With a warranty in place, they’re less likely to get embroiled in post-sale disputes related to allegations that they failed to disclose known problems with the property’s systems and appliances. 
  • Demonstration of Value: Offering a home warranty can be seen as a demonstration of the seller’s confidence in the property’s condition. This can enhance the property’s perceived value among buyers.

If you’re a seller, offering a home warranty can be particularly important if you have a property that has some age on it, since nobody expects appliance and HVAC systems to last forever. Many home warranties also come with a network of reputable service professionals, which can also be helpful for buyers, especially when they have just relocated to an area and don’t have a reliable, vetted network of service professionals at their disposal.

What to Consider When Dealing with Home Warranties

While home warranties can be hugely useful to have, it is essential to understand the details and limitations of the coverage before making any assumptions. Whether you’re a buyer or a seller, here are some key points to consider when you’re looking at any given policy:

  • Coverage Limits: Home warranties come with coverage limits and exclusions. Read the warranty contract carefully to understand what is and isn’t covered. Is there a waiting period before coverage kicks in? If so. how long is it?
  • Quality of Coverage: What’s the reputation of the home warranty company? Looking at their customer reviews online and checking out their Better Business Bureau (BBB) score can help you decide if the policy is actually useful.
  • Service Fees: You’ll likely have to pay a service fee (also known as a deductible) each time you request a repair or replacement. You want to make sure you know what to expect and that the fee seems reasonable.
  • Renewals: Most home warranties are annual contracts, and it’s unusual for sellers to offer more than a year’s coverage. Make sure that you understand when the policy expires and how to renew it if you’re interested.
  • Home Inspection: Some warranty providers require a home inspection before offering coverage. This can help identify any existing issues that might be excluded from coverage.
  • Maintenance Requirements: Most home warranties require you to show that whatever system they cover has been properly maintained before they agree to make any repairs. One example could be an HVAC system that’s excluded due to evidence that the air filter was never changed. Make sure that you know what’s expected on your end so that you don’t end up bereft of coverage when you need it.

Sellers may also want to consider the fact that a home warranty’s cost can come out of the proceeds of the sale, rather than their pocket.

In conclusion, home warranties can be a valuable tool for sellers to sweeten the deal no matter what the market is doing. However, a little due diligence is necessary on both sides to make sure that all parties understand the warranty’s terms and conditions and assess whether the cost aligns with the potential benefits.