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There is no single answer (or a person) for the question- who pays for a home warranty? Home warranties can be bought by buyers, sellers, or even offered as a gift by real estate agents after a home purchase. A home warranty benefits all the parties involved in a real estate transaction by offering peace of mind, providing ready access to professional services, and cutting down costs of expensive repairs and replacements. In this post, we’ll look into what each party stands to gain from purchasing a home warranty and more.
Why a Home-Seller May Want to Pay for a Home Warranty
A home-seller, comparatively, has the most to gain from purchasing a home warranty. A pre-owned home is rarely considered the best catch in the pond. Major appliances and systems tend to go through the wringer when in use, and as they age, they are more likely to break down or malfunction.
The home service contract provides an immediate financial guarantee if something goes wrong. The presence of a home warranty acts as an incentive for potential buyers, making them more confident about purchasing a home.
The result is a prospective buyer who is in equal parts impressed and satisfied with the home’s maintenance. It drives up the price of the home compared to its market value. In addition, some home warranty companies offer sellers a policy for free if they agree to purchase a home warranty for the buyers. Most sellers tend to buy a home warranty for the buyer to smoothen the sale process and avoid any disputes in the future.
Seller warranties are different from the warranties available for home buyers. The warranty will include core appliances and systems, but the coverage may not be as comprehensive as a buyer’s warranty.
Coverage
Air Conditioner
Heating Systems
Plumbing system
Oven
Garbage Disposal
Microwave
Washer
Dryer
Electrical system
Duration
The duration of these warranties may range from six months to the entirety of the listing period depending on the home warranty company. The seller has the option to extend the warranty period after six months if the house is still up for sale.
Cost
Generally, the annual cost of home warranties ranges from $300-$800. If there is an option for monthly payments, you can expect to pay anywhere between $25- $66 a month. The deductible or service fee may range from $60-$100
Why a Buyer May Want to Pay for a Home Warranty
Some houses are beautiful, capturing a buyer’s heart right away, but need a lot of work. If one is spending money on some retrofits or improvements, they wouldn’t want to spend on home systems and appliance breakdowns.
Even otherwise, homes that appear to be in perfect working condition may throw up problems after a sale. A home inspection can be a worthwhile investment in such cases, but it is difficult to predict the impending breakdown of used appliances and systems accurately. Maybe that is why home warranties are a hit with home buyers.
The HVAC system dying or the washer breaking down soon after buying a home can be a nightmare for homebuyers who have just made the most significant purchases of their lives. So, for many, especially first-time buyers, a warranty that reduces the costs of expensive repair work or replacements is worth the cost of having peace of mind.
If it’s a seller’s market or otherwise, where a seller doesn’t include a home warranty in their sale, homebuyers can pay for one themselves. Generally, a home buyer warranty is only available for purchase within the first 30 days of the property’s closing, after which the buyer would have to opt for a homeowner’s warranty.
Further Reading: The best plans for first-time buyers
Some Key Terms of Buyer Warranties
Homebuyer warranties closely resemble the homeowners’ warranty. The plan options for buyers include – the Appliances plan, the Systems plan, or a combination of both. There is also the option to add optional items to the buyer coverage at an extra cost.
Coverage
Buyers coverage may include –
Air Conditioner
Heating Systems
Plumbing system
Refrigerators
Microwave
Oven
Washer
Electrical system
Maintenance Services
Optional add-ons –
Spa
Stand Alone Freezer
Refrigerators
Pools
Duration
The home buyer warranty can last for an entire year, with some companies offering free months of coverage. There are also multi-year plans available.
Cost
The cost of a ‘buyer’ plan may range from $400-$750 per annum, and multi-year plans may cost you in the thousands. The deductible ranges from $60-$175.
Why do Realtors pay for home warranty?
Real estate professionals invest in home warranties for their respective clients, whether a listing or buying agent. A study conducted by the Service Industry Council found that homes listed with a home warranty sell for a couple of thousand dollars more and 11 days faster than one without. So, listing agents seek the services of a home warranty company, sometimes for free, to hasten the home’s sale at a profitable margin.
Buyer agents gift home warranties to their clients after a successful sale to congratulate or thank you for the business. Doing so can leave a good impression on their clients who may suggest the agent to their social circle, thereby increasing their business.
Some Key Facts About Real Estate Plans
The plans available for realtors are similar to those available to sellers and buyers with ‘basic’ to ‘advance’ coverage options. For realtors, home warranty companies also offer sales materials and member benefits.
Coverage
The realtors may purchase home warranty coverage based on the party they represent. There are limited coverage options for sellers while buyers’ coverage is expansive.
Duration
The duration of real estate plans ranges from six months (for sellers) to multiple years, depending on the client’s preference or what the agent wants to offer.
Cost
The cost of real estate plans is similar to the prices associated with seller’s and buyer’s coverage above. If you want the exact price details, you can request a free quote from the company of your choice.
When does a title company buy a home warranty?
To attract and maintain a satisfied client base, title companies pay for home warranties for the same reasons realtors do. They may work alongside realtors to offer a home warranty package at a discounted price along with their services.
In situations where the seller does not offer a home warranty up front but the contract of sale includes it, a title company may step in to purchase the home warranty. They won’t be paying for the home warranty themselves but will dip into the money from the real estate transaction. In some cases, the buyer agent and buyer may decide on a home warranty company/plan of their choice. In other cases, the title company will decide on home warranty coverage based on the money set aside for this purpose in the contract of sale.
How to Pick a real estate plan worth the money
The home warranty industry is saturated with many companies – some good, some decent, and some bad. To help you avoid the pitfalls that come with buying the wrong plan, we have listed some aspects that you should consider while choosing a home warranty that fits your needs –
Coverage
The most important thing to check before buying a home warranty is the kind of coverage options and if they fit your needs. Home warranty plans are typical of three kinds – Appliances plan, Systems Plan, and a combination of both.
Sellers can go for plans that cover the most vulnerable aspects of their homes, while buyers can discern what they need by making a list of what might need coverage. Realtors can offer a comprehensive coverage package to make the buyer feel at ease.
Cost
The next important thing to check for is the cost of the home warranty plans. While the sellers and realtors may provide listing coverage free of cost, buyers need to assess the prices to see if they match their budget. In such cases, requesting free quotes can help understand the exact pricing.
Customer Reviews
Checking reviews by existing customers of different companies can highlight many factors that can help your decision. You could consider companies with good reviews and ratings and decide among them and skip the others who don’t enjoy as much popularity. Some specific factors that you can keep in mind while checking reviews are –
Contractor Base
Most home warranty companies do not allow you to request service from a contractor of your choice, so check whether the company of your choice has a contractor network that serves in your locale and their quality of service.
Claims Process
The ease of the claims process, how helpful their customer service is during this phase, etc., are significant determinants. For example, you do not want to be saddled with a lengthy process while it is an emergency.
Turnaround Time
To pick up from the last point, you should also look for the turnaround time of the companies. While companies may advertise a specific time, you can only figure out the reality from people who have experienced the wait.
Guarantee Period
Most home warranty companies offer guarantees on labor and parts. These guarantees can also serve as a testament to the company’s contractor base and the quality of the products they pay.
Fine Print
All home warranty companies have exceptions and exclusions to their coverage terms. So, read through and understand these limitations in detail and determine if they are acceptable to you. They usually exclude pre-existing conditions, so you’ll want to ensure you don’t have those.
Top 3 home warranty companies for real estate plans
While we can suggest a few pointers and what to look out for, it can be tough to know where to begin. So, we listed below the three top real estate plans in the business for you to consider –
A pioneer of the home warranty industry, American Home Shield offers three real estate plans – ShieldEssential, ShieldPlus, and ShieldComplete. Depending on your choice, they offer basic to advanced coverage options that last for a year or two. Their plans range from $450 for basic coverage for a year to $1,300 for comprehensive coverage for two years, and the deductible stands at $75. The company has one of the largest contractor bases in the country and doesn’t have as many limitations as other companies.
Choice Home Warranty has three real estate plans that you can choose from – Choice Plan, Choice Plus, and Choice Ultimate. The Ultimate Package offers upgrades on HVAC, appliances, etc., from which you can choose the term of these plans while buying. The prices, accordingly, range from $430 to $2100 with a low deductible of $65.
Cinch Home Services offers three real estate plan options: the seller, the buyer, and the Cinch Preferred Plan. In addition to comprehensive coverage options, Cinch’s real estate plans also come with other benefits like Emergency Lodging Reimbursement and Home Insurance Deductible Reimbursement. The buyer coverage has two deductible options, with the plan pricing being higher with a $75 deductible and lower with the $175 deductible. The Cinch Preferred plan has only one deductible option -$175, while the seller coverage is free.
Are home warranties worth the price?
Home warranty policies offer protection to the major appliances and systems in a home. For sellers and realtors, a home warranty serves them well through the listing period. The buyer certainly experiences peace of mind, especially if they are a first-time buyer or buying a pre-owned home.
There are also many allegations of claim denial against home warranty companies, even the reputed ones. We have already stated that home warranties come with a set of exclusions and exceptions. However, this problem can be easily solved by a detailed reading and understanding of these limitations, which will help you file a successful claim.
FREQUENTLY ASKED QUESTIONS (FAQs)
Q.
Is offering a home warranty to the buyer worth it?
A.
Yes, a seller/realtor offering a home warranty to the buyer can find the experience rewarding. Home warranties drive up the market value of the price and incentivize the buyer to purchase the home, accelerating the home sale process.
Q.
Is a home warranty mandatory?
A.
No, a home warranty is not mandatory. It is an optional service contract that you can enlist to protect your home’s interior components.
Q.
Should I get a one-year home warranty at closing?
A.
A home’s appliances or systems can have invisible problems to the naked eye, sometimes even trained ones. So, to avoid shelling out thousands in case of a breakdown, investing a couple hundred dollars or more in an annual home warranty plan at the time of closing can ensure your peace of mind for the rest of the year.
Q.
How long does a home warranty last?
A.
A home warranty lasts for one year but may extend longer if a company throws in free coverage for an extra month or more. You’ll have to renew the home warranty policy after the term ends to keep using it.
Q.
Can I buy a home warranty after closing the sale?
A.
Yes, you can buy a home buyer warranty within 30 days of closing. After 30 days, you’ll have to buy a homeowners warranty if you want coverage for your home systems and appliances.
Q.
What if something breaks before closing?
A.
If you spot a device or item not functioning in a home you’re looking to buy, you can ask the seller to get it fixed. You can use the services of a home inspector to identify any other issues in the listed home and get them fixed too. You could also use this opportunity to ask the seller to include a home warranty as part of the sale to save on any similar future expenses.
Q.
Can you negotiate a home warranty?
A.
You or your agent can negotiate a deal on a home warranty with the seller or listing agent as a buyer. You can ask them to round off the home warranty as a part of the home sale.
Q.
How do I know if I have a home warranty?
A.
If you have moved into a new home and wonder if it is equipped with a home warranty, you can just ask the seller or the realtor. However, you should note that the seller has to transfer the home warranty to your name to use it.
An ideal way to acquire a home warranty is to ask the seller to include it as part of the sale, or you can buy one yourself after closing.
Q.
Can I buy a home warranty as a gift?
A.
Yes, you can gift a home warranty. Real estate agents usually offer home warranties to their clientele as a parting or congratulatory gift. However, some companies like Landmark allow anyone to give home warranties in gift certificates.
Q.
Are Home Warranties Transferable?
A.
Yes, home warranties are transferable. Home sellers can transfer their home warranties to the new homeowners after closing.
Q.
Does every home purchase come with a home warranty?
A.
No, every home purchase doesn’t need to be associated with a home warranty. It is a voluntary purchase.
Q.
How to get a home warranty when buying a house?
A.
You can request the seller to add a home warranty as part of the home’s sale or ask for it to be a part of your sale contract. Or you can also express interest in having a home warranty to your agent, who may gift it to you after closing.
Q.
Is home warranty a selling expense?
A.
Unfortunately, the IRS does not consider the purchase of a home warranty as a selling expense.
Q.
Who pays for a home warranty in California?
A.
Anyone – the seller, buyer, or real estate agent – can pay for the home warranty. However, in California, it is customary for the seller to purchase a home warranty.
Q.
Does an escrow company order home warranty on behalf of the seller or buyer?
A.
If a home warranty is stipulated in the home sale contract, the escrow or title company can order the home warranty. In some cases, the buyer and their agent can pick a home warranty, but the title company will select the package if they don’t show any preference.
Q.
Is a home warranty included in the mortgage?
A.
Since a home warranty is a voluntary service contract, it is not necessary for a mortgage. On the other hand, homeowner’s insurance is mandatory to get a mortgage.
Q.
How soon can you use a home warranty after purchase?
A.
Most home warranty companies have a waiting period of 30 days to avoid misuse. Some companies may have a shorter waiting period. After the waiting period ends, you can file a claim when a covered item breaks down.
Q.
When might a limited warranty be a better choice than a full warranty?
A.
If you own an old appliance or system and don’t want coverage for all the items at home, it would be ideal for taking out an extended warranty for that specific item instead of investing in a home warranty.
Q.
Residential service contract vs. home warranty- which is better?
A.
A residential service contract is the same as a home warranty. It offers protection to a home’s major appliances and systems.
Q.
What should I look for in a home warranty contract?
A.
A home warranty contract is filled with all the details that can help you file a successful claim. You should look out for details about the extent of coverage, any exceptions and exclusions, dollar limits for each covered item, and more. You must also check out transfer, cancellation, and renewal information.
Q.
What is the best time to buy a home warranty?
A.
The components of a new home come equipped with manufacturer warranties and do not require other added protection. So, the best time to buy a home warranty is a few years down the line when your home, along with its components, begins showing signs of wear and tear.
Q.
How does a home warranty work?
A.
Home warranties are service agreements that last for one year. They offer repair and replacement services to your home’s appliances and systems at reduced prices. Generally, the warranty kicks in after a waiting period, after which you can file claims for your covered items.
You can call customer service or request service online to file a claim. A house visit with a technician is scheduled at your convenience. After checking if the item is covered and performing an initial diagnosis, the technician recommends a repair or replacement. Sometimes, the home warranty company offers cash instead of replacement.
Q.
For how long should the seller pay for the home warranty?
A.
A seller can pay for an entire year’s worth of coverage at once.
Further Reading: 
