As a real estate agent, I know how important it is to help my clients make informed decisions about selling their property. One aspect that comes up frequently is whether sellers should offer buyers a Home Warranty at Closing.
In most cases, the answer is “Yes” as a home warranty provides an added incentive to potential buyers. However, we will review situations where this may not be necessary or adds little value to the home buyer.
We often get many additional questions from home buyers and sellers about home warranties – “What are they?”, “What do they cover?” and “Are they worth it?” plus many more.
Therefore, we put together a list of common questions and answers. Plus, a few tips to help you choose a home warranty, whether you are a home buyer or seller.
Let’s start with a basic review of what is a home warranty, what a home warranty covers, what is the difference between a home warranty and home insurance, and if you should consider offering one when selling your home.
What is a Home Warranty?
A home warranty typically provides coverage for major appliances and systems in your home, such as the plumbing lines, HVAC Systems, and electrical systems, as well as kitchen appliances, like the refrigerator, oven, dishwasher, etc.
Don’t confuse a home warranty with homeowner insurance, which covers damage caused by natural disasters or accidents. A home warranty covers repairs or replacements due to normal wear and tear.
How Does a Home Warranty Work?
Home warranty providers vary depending on what they cover, but most have tiered plans to meet the needs of most homeowners. Once you select a provider and plan (more on this below), you will pay an annual coverage premium of around $525 to $675 per year on average for most basic plans.
If an appliance or system stops working or breaks and is covered by the warranty, just call the home warranty provider, and describe the issue. Then, the home warranty provider will then select a service professional from their pre-qualified list of contractors to handle the problem.
The service contractor then contacts you to schedule the service call. Always be sure you call the home warranty company first and not a service provider of your choice. Otherwise, the repair will likely not be covered.
Lastly, depending on the type of warranty plan you signed up for, you will usually pay a service call fee ranging from $65 to $150. This fee is paid each time you have a service call for any new issue.
What is Usually Covered Under a Home Warranty, and What is Not?
Once you have chosen a warranty provider, it’s important to review the details of the plans they offer to be sure you’re getting the coverage you need.
What is “covered” in a home warranty plan?
While most home warranty providers offer tiered programs, these items are usually covered in their basic plan.
Always check coverage carefully, as this list may change from one provider to the next.
- Washers and dryers (if you purchased this additional add-on coverage option)
- Stoves, ovens, and surface-top cooking appliances
- Garbage disposals
- Dishwashers
- Built-in microwaves
- Refrigerators (policies differ – check this one closely)
- Heating and cooling systems (HVAC)
- Water heaters
- Indoor plumbing
- Indoor electrical systems
Some plans allow you to buy add-on coverage for items such as:
- Pool equipment, such as pumps and motors
- Spas and Jacuzzis
- Additional appliances (extra refrigerator in the garage, for example)
- Large freezers
What is usually “not covered” in a home warranty plan?
Every provider is different, but many of the items listed below may be excluded from basic home warranty coverage plans.
Although, some of these items may be covered under a homeowner’s insurance policy.
- Problems that are pre-existing and/or discovered during a home inspection
- Improper maintenance (this is a big one and may be used by less reputable companies to deny payment)
- Garage doors and tracks
- HVAC systems or appliances that are not up to standard code
- Structural damage, such as foundation, doors, windows, and walls
- Outdoor plumbing, such as sprinklers, faucets or valves
- Roofs
- Extra appliances
What is the Difference Between a Home Warranty and Home Insurance?
While home warranties and insurance each help cover unexpected expenses – they are very different.
Homeowners insurance provides coverage for things like damage to your home due to floods, fires, storm damage, or accidents. Homeowners insurance policies are purchased when buying a home and are required by lending agencies.
On the other hand, home warranties are designed to cover the working parts of your home that would typically result in a service call from a licensed professional such as a plumber or electrician.
A home warranty covers items due to normal wear and tear in usage. Otherwise, you’ll pay the full repair or replacement cost if you don’t have home warranty coverage.
What are the Pros and Cons of Offering the Buyer a Home Warranty at Closing
As with many decisions you’ll need to make when selling your home, you should consider the Pros and Cons to weigh the potential benefits and downsides of any decision when it comes time to sell your home.
Potential Benefits
Offering a home warranty can benefit both the seller and the home buyer.
For the seller, it can provide a sense of security to the home buyer, showing that the seller is committed to ensuring that the home is in good condition.
Offering a home warranty also provides peace of mind during the transaction, as the buyer may be less likely to back out of the deal due to concerns about potential repairs or replacement costs after closing.
Additionally, offering a home warranty can make the property more attractive to potential home buyers, showing that the seller is willing to go above and beyond to ensure a smooth transaction.
Downsides to Consider
Of course, there are downsides to offering a home warranty as well.
The cost of the warranty can be as little as a few hundred dollars per year or up to several thousand dollars, depending on the level of coverage and the size of the home.
Additionally, there may be limits and exclusions on the coverage, leading to disputes between the warranty provider and the homeowner if something is not covered.
Finally, it’s important to note that some home buyers may not see the value in a home warranty, especially if they plan on renovating or upgrading the home after closing.
When Does it Make Sense to Not Offer a Home Warranty at Closing?
It’s important to know that while offering a home warranty can be beneficial in some cases, it may not be the best option for every seller.
For example, if the home is relatively new and all of the appliances and systems are still under warranty, offering an additional home warranty may not provide much added value.
Similarly, if the market is hot and homes receive multiple offers, a seller may choose not to offer a home warranty to keep their costs down and a Buyer may choose not to request one to be more competitive.
Ultimately, many factors will influence the decision on whether to offer a home warranty or not. Perhaps there is a unique circumstance regarding the home or the current state of the real estate market.
Sellers should weigh the potential benefits and downsides to make an informed decision. Every home sale is a negotiation.
Let’s Review Home Warranties in General from Costs, Coverage and Provider Reputation
So, should you decide to offer a Home Warranty to the buyer. Or even purchase one for yourself. It’s important to choose the right provider.
Look for a company with a strong reputation for quality service and customer satisfaction. As we mention throughout this article, don’t just Google them. Talk to your real estate agent or other people who actually use these companies (the internet has lots of false referrals and references on home warranty companies).
When selecting a provider, also consider coverage options, pricing, and eligibility requirements.
Now that you know the basics of home warranties and what they cover, let’s review some of the questions we are often asked regarding home warranty costs and benefits.
How Much Do Home Warranties Cost?
Home warranty coverage costs will vary based on several factors, such as the size and number of systems or appliances in your home and how competitive the market is in your location.
The best way to get an exact cost is to get quotes based on your needs. However, the average annual price for home warranty coverage in North Texas is $696.00 per year, with the national average cost for homeowners between $350 and $600 per year.
If you have a pool, spa, or other items you want covered, you’ll pay additional add-on premiums, which could increase these annual costs.
Are Home Warranties Worth the Cost?
A home warranty can provide peace of mind for homeowners when an appliance or system unexpectedly goes on the fritz. Especially considering the high cost of some repairs or replacements nowadays.
Also, a home warranty is something to consider if you currently own a home with older appliances and HVAC systems.
For example, let’s say your AC starts blowing warm rather than cool air. The most common culprit is a faulty AC Compressor. Home Advisor reports the average cost of replacing your AC Compressor is between $1,350 and $2300 or more in the Frisco and Plano area.
Also, consider a home warranty if your AC system is getting up there in years. For example, replacing an AC unit in Frisco, TX, and surrounding areas could cost between $4,500 to $8,000 or more.
Repair instead? For common repairs on AC units or water heaters, most homeowners without a home warranty plan will spend an average of $550 on repairs, including parts and labor.
Who Pays for a Home Warranty?
If you are buying or selling a home, the topic of a home warranty will often come up in the negotiations. Sometimes, a home warranty may be paid for by the buyer, the seller, or even the mortgage lender.
Most often, a home warranty is paid for by the seller at closing, with the buyer choosing the actual home warranty company and coverage plan within the annual costs offered.
As is the topic of this article, many home sellers offer a home warranty as an incentive. This helps alleviate concerns from the prospective home buyer about items overlooked during the home inspection or that may break down soon.
Can You Purchase a Home Warranty After Closing?
Yes! If market conditions favor home sellers, they may not offer a home warranty at closing.
So, should the seller not offer a home warranty, the buyer can purchase one themselves at closing. This option is often less expensive than buying a warranty plan later. However, if you choose not to purchase a home warranty at closing, you can buy one anytime to protect if a major repair is needed.
How Long is a Home Warranty Coverage Period?
Home warranties are typically purchased for a 1-year term, although some providers may offer savings if you sign up for a multi-year contract. Each year, you will pay an annual premium.
Many home warranty providers increase prices every so often in their annual premiums and service call fees to help cover their costs.
The benefit of a multi-year contract is the annual premium is locked in at the contract rate.
How to Choose a Reputable Home Warranty Company and Plan
If you offer a home warranty when selling your home or purchase one for yourself, it’s important to choose a reputable provider. Look for providers with a solid reputation for customer service and claims processing. Also, ask your Real Estate Agent, Lender or Title company for reputable names.
Additionally, read the fine print to understand what is covered and what is not. Also, be sure you’re aware of any applicable deductibles or service fees.
Finally, consider the level of coverage needed based on the age and condition of the home appliances and systems.
If You’re Not Sure Where to Start – Ask Your Realtor
Your Real Estate Professional is a great place to start shopping for a home warranty provider. They will usually have excellent insight and first-hand knowledge about the reputations of different companies.
They can point out other subtle differences, such as whether they offer support through a local field representative or just a national 800#.
Also, some home warranty companies are completely app-driven (think of Uber) with apps that track when drivers are arriving, etc. While some may love this, others want someone they can call if they need help with a problem.
Tips in choosing a home warranty company:
- Check the BBB listing: Check the provider’s reputation and reviews at the Better Business Bureau – many disreputable home warranty companies are out there, so take the time to do this important step. The BBB can give you great insight into complaints filed and if or how the company resolved the issues.
- Referrals: Ask your friends, neighbors, and colleagues who they use and if they’re happy with them. These types of referrals are almost always the most genuine and trustworthy source.
- Consumer reviews: Look at online consumer ratings but be careful that the reviews are genuine and from real customers. Many companies still pay for fake reviews, which can sometimes be hard to spot if not careful. Most comparisons and companies we see rated on the internet are companies we have never heard of in our area. Be very careful.
- Trusted third-party reviews: Look at trusted review sites such as Consumer Reports. Again, please don’t fall for fake review sites that look like they provide unbiased reviews and then lure you into clicking on a button to buy.
It can be a daunting task to find a good home warranty provider. If you’re unsure, a friend or family referral is usually your best bet. Or even better, ask your realtor.
Home Warranty is a topic we get asked often, and we are always happy to help our clients.
Questions to Ask a Prospective Home Warranty Provider Before Purchasing
Be as informed as possible to avoid any surprises should you have to file a repair claim down the road.
- Is there a waiting period before you can use your warranty plan?
- What specific items are covered, and which items are not covered?
- Can you choose your contractor, or are you limited to their list of providers?
- Ask to see the specific denial of payment and exclusion clauses – they all have them in their contract, and it’s essential to understand these fully before you sign
- How much are the annual premiums and service call fees?
- When was the last price increase where you raised your premiums or service call fees?
- How are disputes handled?
- Are there annual limits on what the plan will pay out?
Final Thoughts
When it comes to offering a home warranty at closing to potential buyers, be sure to highlight the benefits and peace of mind that it provides.
You should emphasize that the home warranty can help protect them from unexpected repair or replacement costs. Plus, it provides assurance that they are making a sound purchase.
You may also want to include information about the specific coverage options and terms, so home buyers understand exactly what the warranty covers.
Offering a home warranty to buyers is a smart strategy for sellers. It helps to differentiate their property in a competitive market and provide added value to potential buyers.
About the Judi Wright Team
Judi Wright, The Judi Wright Team, is a real estate group specializing in Frisco, Plano, and the surrounding areas and the suburbs of Dallas. Named the “Best Realtor in Dallas” by D Magazine 17 times and a Five Star Realtor with Texas Monthly 13 times. Judi is also a Company-Wide Top Performer with Ebby Halliday, a Berkshire Hathaway affiliate.
