Buyers vs. sellers home warranty

A home warranty is like an insurance policy that covers repair or replacement of major appliances and systems, including electrical, plumbing, heating and cooling, when they break down during normal use. Most people get a plan when they buy or sell a house. However, you can take out a policy at any time.

In general, a homebuyer warranty and a homeowner (seller) warranty cover similar services. For both, it costs anywhere from $300 to $600 for a one-year term. However, there are a few differences you should be aware of.

Differences between a homebuyer warranty and a homeowner warranty

Like the names imply, a homebuyer warranty is for someone who is buying a new home and wishes to take out extra protection on it, and a homeowner warranty is for someone who currently owns a home and wants extra insurance while it sits on the market. Typically, homebuyer warranties are obtained when someone is listing their home to be sold, but they can be taken out at any time.

Both policies can cover the same things, like heating and cooling systems, refrigerators, washers and dryers, plumbing, electrical systems, ovens and dishwashers. A homebuyer might take out a policy on a newly purchased home if they're unsure of the life span or condition of the systems or appliances, while a homeowner would take out a policy to ensure none of these major systems break down and cause problems during the sale.

Home warranties generally do not cover anything that the seller discloses in the listing or anything faulty in the inspection report. Because most sellers ensure that appliances and home systems are in working order before they sell or disclose any that are not, a homebuyer policy tends to be less expensive than a homeowner policy. Warranty providers assume there’s less that can go wrong. A homeowner policy tends to be more expensive because it usually covers everything that could potentially fail in a home. For more information, learn about the differences between a home warranty and insurance.

Home warranty benefits for the seller

If you’re selling a house, a home warranty works by saving you money on repairs while you are looking for a buyer. Here are a few of the major reasons why a seller would want to purchase a warranty while their home is on the market:

• Incentive for buyers: If you’re selling in a buyer’s market — where home inventory is high and buyers have the advantage — offering a home warranty can incentivize a buyer to make an offer since they’ll know they have security against expensive repairs.
• Protection for older appliances: Even if your appliances are in working order, they may be older and will fail at some point. Seller’s coverage can guard against these potential repair costs while your home is listed.
• Help with maintaining a budget: Selling a home comes with many added costs, especially if the home is vacant when you sell, since you have to keep up with mortgage payments until the sale closes. The last thing you want is unforeseen costs due to a broken appliance or home system, which could delay the sale.
• Peace of mind: Selling a home can be a stressful time, and paying the extra money for a warranty offers peace of mind that even if problems do come up, you’ve got a plan in place to handle them.

Home warranty benefits for the buyer

Homebuyers can benefit just as much from warranty policies as sellers do. The overall cost of a warranty plan, including service fees, often comes out lower than the price of parts and labor on major repairs. When something breaks, the warranty provider connects with a licensed local contractor. You only have to pay a service fee — a flat rate of $75 to $125, depending on the terms of your contract — for the contractor to visit and diagnose the problem, and the home warranty company pays the rest. If the local technician is unable to repair the appliances or system, the warranty company pays for a replacement item.

Here are some of the most significant reasons a buyer might want to take out a policy:

• Financial protection: A home purchase is likely the biggest purchase of your life. You want to ensure it stays in working order. A home warranty can be a cost-effective way to protect your new investment.
• Easy access to repairs: When you have a home warranty, you don’t have to figure out what local contractor or technician to choose. Home warranty companies have a network of licensed, insured contractors and find one for you. This is one less thing to think about as you’re settling into your new home.
• Potential to pass costs off to the seller: In some cases, a buyer can request that the seller pays for the homebuyer’s warranty as part of the sale process. If the buyer is in a strong position, a seller will often agree to include a home warranty.
• Limits out-of-pocket expenses: There are a number of costs that go along with buying a new home, such as moving expenses and closing costs. By taking out a home warranty, you are protecting your budget against unforeseen costs.

Bottom line: When do you need a home warranty service agreement?

A home warranty service agreement is never a required purchase. Still, the peace of mind you get knowing that your investment and finances are protected can make it worthwhile. Whether or not you decide to purchase a plan either as a seller or as a buyer should depend on several factors: the condition of your home’s appliances and systems, the condition of the housing market and how willing you are to risk paying for repairs out of pocket. We suggest working with a trustworthy real estate agent to help make the best decision for your specific circumstances. Next, read about how to sell and buy a house at the same time.