10 Things to Know About Home Warranties When Selling a House

A home warranty offers sellers and homebuyers peace of mind that appliances and mechanical systems will remain in working order until the homebuyer takes possession.

Most real estate agreements require that a house is in the same condition as when the buyer viewed it when they take possession, so if an appliance or mechanical system breaks down after you’ve signed a purchase agreement, you’ll have to repair or replace it. A home warranty, sometimes referred to as home repair insurance, can help you safeguard against that unexpected expense.

With a policy in place, instead of panicking, you can simply call your provider. Plus, home warranties can be used as marketing incentives to attract buyers and provide a little extra peace of mind.

We’ve consulted Cindi Blackwood, a top real estate agent who works with over 65% more single-family homes than the average agent in Little Rock, Arkansas, to bring you 10 key insights sellers should know about home warranties. Let’s get started.

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1. A home warranty isn’t the same as homeowners insurance.

It’s easy to confuse homeowners insurance and home warranties because they both cover home repair costs — but the coverage they provide is vastly different.

What does homeowners insurance cover?

A homeowners insurance policy, which protects the value of your home, pays for losses or damages arising from unexpected events, such as fire, flood, theft, or storm damages.

What does a home warranty cover?

A home warranty, which covers the appliances and/or the maintenance systems in your home, pays a portion of the cost to repair or replace such items when they break down. Depending on the level of coverage, a warranty may cover your HVAC (heating, ventilation, and air conditioning) systems, plumbing, water heater, electrical, and major appliances.

How much does a home warranty cost?

According to Consumer Affairs, home warranties are 12-month contracts that typically cost between $40 to $60 a month, while the average cost of an annual home warranty is $450 to $600 per year, depending on the provider and level of coverage. For example, the most comprehensive home warranty coverage can cost upward of $1,000 per year. The cost of your home warranty plan might be reduced by senior or military discounts.

How much will you pay for repairs with a home warranty?

Most home warranties charge a service fee, or deductible, of approximately $75 to $150 each time you call a contractor to come out to repair or replace items. This fee is nominal when you compare it to the cost of hiring an experienced contractor, plumber, or electrician yourself without the home warranty discount.

Since the service fee from the contractor-of-choice is usually charged per visit, it’s the smart play to create a list of all issues that need attention so that you can limit your service fees. Keep in mind that your home warranty provider may send a contractor who specializes in your primary problem. So you may be able to have your dishwasher and your leaky faucet repaired in the same visit, but not a faulty electrical outlet.

2. Home warranty plans vary in their coverage.

Like homeowners insurance policies, home warranties also come with rules, restrictions, and exemptions on coverage.  Because home warranties are all different, it’s important to read the fine print to understand exactly what’s covered.

Home warranty policies don’t cover routine maintenance. Instead, they provide service, repair, or replacement cost savings when your home’s main systems or appliances stop working.

Blackwood notes that the home warranty policyholder can select different levels of coverage.

“Some policies offer add-on coverage, such as covering additional plumbing like a hot tub. And most warranty companies will typically fix things until they can’t be fixed anymore. At that point then they will replace it, however, there are limitations,” she explains.

For example, it may cost you between $7,000-$12,000 out of pocket to replace an entire HVAC system on average. While your HVAC system may be covered by your home warranty, if it can no longer be repaired (and has been routinely maintained) many home warranties will pay a portion of the replacement cost. How much your policy will pay varies between providers and policies.

Which incentives attract buyers in your market?

A home warranty is just one option to help give buyers peace of mind about purchasing your home. Connect with a top agent through HomeLight to find out if you need to offer a home warranty and what other incentives might help your house sell faster and for more money.

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Standard coverage

According to This Old House, a typical home warranty is going to cover the following appliances and home systems:

Appliances:

• Refrigerator
• Dishwasher
• Built-in microwave
• Washer/dryer
• Oven, stove, and range
• Built-in microwave
• Garage door opener
• Trash compactor
• Free-standing ice maker
• Built-in food center

Systems:

• Air conditioning and heating
• Electrical system
• Internal plumbing
• Water heater
• Garbage disposal
• Instant water dispenser
• Smoke detectors
• Central vacuum
• Ceiling fans
• Doorbell

Optional coverage

Some warranties may provide optional coverage of additional systems, which may include:

• Roof
• Ductwork
• Pest control
• Re-keying
• Water softener
• Water filtration system
• Sump pump
• Well pump
• Septic system
• Pool filter
• Spa
• Irrigation system
• Duplicate appliances

The right coverage is key when picking a home warranty plan.

If you’re selling an older home with outdated plumbing, electric, and HVAC systems, but you’ve just installed brand new appliances — which are covered by manufacturers’ warranties — you may want to offer homebuyers a systems-only plan. If your appliances are older, but you’ve recently updated the HVAC, you might opt for the appliances-only plan. If your appliances and systems are aging, then pick a comprehensive plan.

3. Offering a home warranty to buyers may cost you nothing.

While general home warranties charge monthly or annually for 12-month coverage, most home warranty companies do offer a limited seller’s home warranty — often for free. Most policies cover the home while it’s on the market for no cost to the seller, however some charge a nominal fee to provide this coverage.

“Getting a home warranty when you list your home for sale is a no-brainer because there’s no additional cost to the seller. The price of the warranty comes out of the proceeds, not out of your pocket. Plus, for the most part, the seller’s coverage is free, even if they’ve used the warranty to make repairs. I tell my sellers that it only makes sense for them to have a home warranty in place during escrow, and it’s absolutely essential if the sellers are no longer living in the home,” explains Blackwood.

Here’s how it works:

1. The seller activates a home warranty.
2. The seller can use the policy to make repairs while the home is listed or in escrow, as long as the issue is not pre-existing.
3. If the seller uses the policy while the home is listed or in escrow, the seller only pays the cost of service calls, not the cost of the policy.
4. When the home sale closes, the warranty is transferred to the buyer.
5. If the buyer accepts the transfer, the cost of the policy typically comes out of the seller’s proceeds.
6. If the buyer opts not to accept, the warranty is then canceled at no cost to the seller. However, this does vary from company to company.

4. A seller’s home warranty protects you during the listing period and can help you save on repair requests.

Home warranties can be a big help during escrow when your buyer submits a list of repair requests after getting their home inspection report. If any items on the repair list are covered under the home warranty, then you may be able to use the policy to help cover the costs of those repairs.

“Getting a home warranty was a home run for my sellers who were asked to have a leak under the bathroom sink fixed as well as a few other plumbing issues. Instead of spending hundreds on an independent plumber to make the repairs, they used their home warranty, which only cost them around $100 to have all of the issues fixed,” recalls Blackwood.

5. Existing home warranties are often transferable from the seller to the buyer.

Some homeowners are such big believers in home warranties that they maintain one the entire time that they own their home. If you have a home warranty in place prior to listing, that warranty may be transferable to the new owner. But it might be a smarter move to cancel your existing policy and get a limited seller’s home warranty, which will cost you little to nothing, specifically for the home sale.

This is actually better for the buyer because that way they get a full year of the new home warranty, rather than the remainder of your existing home warranty. Plus, your home warranty company may refund you the remainder of your existing policy when you activate a new seller’s warranty.

6. A home warranty is a popular incentive to attract buyers in a slow market.

When sprucing up your property isn’t enough to stand out from the competition, including a home warranty in your listing may do the trick. Listing your property with a seller-paid warranty will help get buyers through your front door.

If other listings are also offering a home warranty incentive, consider upping yours to a 24-month policy. The hundreds more you’ll spend on a longer warranty is insignificant when you consider how much you’ll save in mortgage, utilities, and taxes if you sell your property sooner. Plus, you may be able to negotiate a discount for a 24-month policy with your home warranty company.

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7. In a seller’s market, you likely don’t need to offer a warranty as a carrot, but…

In a seller’s market, you typically don’t need to dangle the offer of a home warranty to bring in buyers. But home warranties still have a role to play in hot markets. Not only do they provide you with protection should anything break before your home sale closes, but they are also a powerful tool to use during negotiations once you’ve accepted an offer.

“It’s more advantageous for sellers to make the deal that’s on the table work for all parties rather than terminate the sale and go back on the market. Rather than starting over, it saves money to make the deal work by offering a home warranty in place of completing repair requests submitted by your buyer,” says Blackwood.

8. A home warranty provides your buyer with peace of mind about their purchase.

By offering a home warranty, you provide your buyers with the peace of mind that should anything go wrong with the appliances or systems, the home warranty will cover the bulk of the expense. And that may be just what you need to close the deal with buyers so nervous about homeownership that they want you to repair your house until it’s in brand-new condition.

“Home warranties are attractive to buyers because it provides them with confidence that they’re not going to be in dire straits should something major break within the first year in their new house,” explains Blackwood.

9. A home warranty is useful in negotiations when buyers present repair requests.

Having a seller’s warranty in place for the duration of your home sale makes sense in a lot of cases. But as we explained earlier, you may just want to save the warranty as your wildcard at the negotiation table.

If you’re confident enough in the condition of your home that you feel you can forego a home warranty during your listing period, keep the offer of a home warranty in your back pocket. When you get to the stage where your buyer turns over a repair request list, you can counter with the offer of a home warranty.

This strategy is a win for both the seller and the buyer. The seller wins because they don’t have to pay for those repairs out of pocket. It’s a win for the buyer because they get to oversee the repairs, plus they get the use of the home warranty for its duration should other problems arise.

10. Deal hanging by a thread? A home warranty can help.

A home warranty insulates the real estate transaction should anything go wrong in the eleventh hour. If you play the home warranty card right, it may just save your home sale.

“I’ve had a situation where the home warranty became a deal saver. This was an older home, and the buyers wanted the outdated HVAC replaced. My sellers just couldn’t afford it. That sale went from ‘no deal’ to the closing table because the home warranty bridged the gap. The cost of the home warranty came out of the proceeds rather than my sellers paying out of pocket to replace the HVAC,” recalls Blackwood.

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When in doubt, consult your real estate agent.

For more peace of mind about your home sale, partner with an experienced, top-performing agent who can guide you on your home warranty options. HomeLight’s free Agent Match platform can connect you with the top agents in your area.

Editor’s note: Christine Bartsch contributed to this story.

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