When navigating the real estate buying process, one term that often arises is home warranty. While it might sound similar to home insurance, a home warranty serves a distinct purpose and offers unique benefits to both buyers and sellers. In this guide, we’ll break down how home warranties fit into the real estate transaction process, address common questions, and clarify who typically pays for them.
What is a Home Warranty in Real Estate?
A home warranty is a service contract that covers the repair or replacement of major home systems and appliances that may break down due to normal wear and tear. Unlike homeowner's insurance, which protects against unexpected disasters like fires or floods, a home warranty specifically addresses systems such as HVAC, plumbing, electrical systems, and major appliances like refrigerators, ovens, and washers/dryers.
For homebuyers, a warranty can provide peace of mind knowing they won't face significant repair costs shortly after moving in. For sellers, offering a home warranty can make their property more appealing to buyers.
What is a Home Warranty Deed?
The term home warranty deed is often confused with a traditional home warranty, but they are not the same. A warranty deed is a legal document used in real estate transactions to transfer property ownership from the seller to the buyer. It guarantees that the seller holds a clear title to the property and has the legal right to sell it.
A home warranty, on the other hand, is not a legal document but rather a service agreement. While both terms involve assurances during the real estate process, they serve very different purposes.
Is a Home Warranty Required at Closing?
No, a home warranty is not legally required at closing. However, it is often included as part of the negotiation process. Some sellers may offer to include a home warranty as an incentive to attract buyers, while buyers can also request one during negotiations.
In competitive markets, sellers sometimes pre-purchase a home warranty to make their listing more attractive. Conversely, in buyer’s markets, buyers may ask sellers to cover the cost of a home warranty.
Who Pays for the Home Warranty: Buyer or Seller?
The responsibility for paying for a home warranty depends on the terms negotiated in the sales contract. There are generally three scenarios:
- Seller Pays: Sellers may offer to cover the cost of a home warranty as an incentive for buyers.
- Buyer Pays: Buyers may choose to purchase a home warranty themselves after closing.
- Split Costs: In some cases, the cost may be shared between the buyer and seller as part of the closing agreement.
It’s essential to clarify this detail in the purchase agreement to avoid confusion later in the transaction.
Who Pays for a Home Warranty at Closing?
If the home warranty cost is included in the sales contract, it is typically paid as part of the closing costs. This means the title company or escrow agent will collect the funds at closing and ensure the warranty policy is activated.
If the buyer chooses to purchase a home warranty independently after closing, they will handle the payment directly with the home warranty company.
What is a home warranty for buyers?
A home warranty for buyers provides protection during the crucial first year of homeownership when discovering potential issues with systems and appliances. The coverage helps reduce financial uncertainty during the transition to a new home, covering repair or replacement costs for covered items that fail due to normal wear and tear. These warranties often transfer seamlessly if included in the home purchase, starting coverage on the closing date. Buyer warranties typically include basic coverage for major systems and appliances, with options to upgrade protection levels. The coverage helps buyers avoid unexpected expenses while learning about their new home's systems. Many real estate transactions include seller-paid warranties as buying incentives, though buyers can also purchase coverage independently.
How does a home warranty work for the seller?
Seller's home warranty coverage provides specific benefits during the home sale process. Coverage typically protects major systems and appliances during the listing period, reducing seller liability for repairs. If covered items fail during the listing period, the warranty company coordinates repairs through their contractor network, minimizing sale disruptions. Sellers pay only the service fee for covered repairs, helping maintain predictable costs during the sale process.
The warranty often transfers to the buyer at closing, serving as a valuable marketing tool and purchase incentive. Some companies offer specific seller's coverage with reduced rates during listing periods. Understanding coverage terms, transfer procedures, and claim processes helps maximize seller protection benefits. Proper disclosure of warranty terms during sale negotiations remains important for clear buyer expectations.
Can I Buy a Home Warranty After Closing?
Yes, you can buy a home warranty after closing. Many warranty providers allow homeowners to purchase a policy at any time, regardless of how long they’ve owned the home. However, buying a warranty during the closing process is often more convenient, as the costs can be rolled into the transaction.
If you’re buying a warranty post-closing, be sure to research providers, compare coverage options, and ensure you’re aware of any waiting periods or exclusions.
How to get a home warranty when buying a house?
Securing a home warranty during house purchase involves several strategic steps. First, determine if the seller is offering warranty coverage as part of the sale. If not, negotiate warranty inclusion in purchase offers, often as a seller-paid closing cost.
Research multiple warranty providers comparing coverage options, pricing, and service reviews specific to your new home's needs. Consider timing coverage to begin at closing, ensuring no protection gaps. Review coverage terms, exclusions, and service procedures before selection.
Some companies offer special new home purchase programs with reduced waiting periods or enhanced coverage options. Coordinate with real estate agents and title companies to ensure proper warranty documentation and payment processing during closing. Understanding coverage options, negotiation possibilities, and activation procedures helps secure appropriate protection for your new home.
Benefits of a Home Warranty During the Real Estate Process
- Peace of Mind: Buyers gain confidence knowing they are protected against costly repairs.
- Increased Marketability: Sellers can make their property more attractive by offering a home warranty.
- Budget Protection: Unexpected repair costs can strain a new homeowner's budget. A warranty offers predictable expenses.
- Smoother Negotiations: Including a home warranty can ease tensions during inspection contingencies and repair negotiations.
Key Considerations When Choosing a Home Warranty
When selecting a home warranty during the real estate process, consider the following factors:
- Coverage Scope: Ensure major systems and appliances are covered.
- Exclusions: Review what is not covered under the warranty.
- Contract Terms: Understand service fees, deductibles, and claim limits.
- Provider Reputation: Look for providers with good reviews and responsive customer service.
While a home warranty isn’t required during the real estate buying process, it’s often a valuable tool for both buyers and sellers. Whether included in the sales agreement or purchased independently, a home warranty can offer peace of mind and financial protection against unexpected repairs.
Buyers should carefully review their home warranty options, and sellers should consider whether including one could give their property a competitive edge. In the end, a home warranty is about protecting your investment and ensuring your homeownership experience starts off on the right foot.
