How Much Is a Home Warranty When Selling a House?

A home warranty is a service contract that covers the repair or replacement of major home systems and appliances due to normal wear and tear. It offers financial protection against unexpected breakdowns, reassuring both the seller during the listing period and the buyer after ownership. Unlike homeowner’s insurance, which addresses catastrophic events, a home warranty focuses on the home’s functional components.

Understanding Home Warranty Costs

The financial outlay for a home warranty when selling a house generally falls within a range, with annual costs typically spanning from $300 to $700. More comprehensive plans, which offer broader coverage, can sometimes extend beyond $1,000 annually. When considering monthly payments, this usually translates to approximately $25 to $60.

Several factors influence the precise cost of a home warranty. The chosen level of coverage plays a significant role, with basic plans being less expensive than those offering enhanced protection or optional add-ons for items like pools, septic systems, or roof leaks. The size and type of the property also impact pricing, as larger homes often contain more extensive systems and appliances, increasing the potential for repairs. Older homes may incur higher costs due to the increased likelihood of components nearing the end of their lifespan.

Geographical location also affects costs, as repair expenses and market conditions vary by region. Provider pricing structures also vary. While either the buyer or seller can pay for a home warranty, sellers most commonly offer and pay for it as an incentive to attract buyers, especially in competitive markets.

The payment for the home warranty is frequently handled at closing, becoming part of the overall closing costs. In such cases, the title company or escrow agent typically collects the funds and ensures the policy is activated for the new homeowner. Some home warranty companies even offer discounted or free seller’s coverage during the listing period, provided the seller agrees to purchase a full buyer’s warranty that activates upon sale completion.

Typical Coverage and Limitations

A home warranty plan typically covers the repair or replacement of major household systems and appliances that cease functioning due to normal wear and tear. Common items included in standard coverage are heating, ventilation, and air conditioning (HVAC) systems, plumbing and electrical systems, and the water heater. Major kitchen appliances such as the refrigerator, oven, dishwasher, and built-in microwave are also frequently covered, alongside clothes washers and dryers.

Home warranties come with limitations and exclusions. Pre-existing conditions are generally not covered. Structural components like the roof, foundation, and walls are typically excluded, as are cosmetic damages.

Issues from a lack of routine maintenance, misuse, or improper installations that predate the policy are also commonly excluded. Items that have exceeded their expected useful life may not receive full replacement. Specialized systems like septic systems, well pumps, swimming pools, or pest damage usually require additional, optional coverage.

When a covered item requires service, the homeowner is responsible for paying a service call fee. This fixed fee, often ranging from $50 to $150, functions similarly to a deductible. It is paid each time a technician is dispatched to diagnose or repair a covered issue, regardless of the repair’s final cost or outcome.

Acquiring and Transferring a Home Warranty

Sellers can acquire a home warranty at various stages of the selling process. Some purchase one before listing for protection while the home is on the market. More commonly, a home warranty is offered by the seller as an incentive during negotiations or included in the sales contract, with purchase finalized at closing. Real estate agents often assist sellers in selecting a suitable provider and plan.

Most home warranties acquired during a real estate transaction are transferable to the new homeowner. This transferability benefits the buyer by extending peace of mind. The transfer process typically involves the seller notifying the home warranty provider about the change in ownership. The provider then gives specific instructions, which may include completing a transfer form and submitting proof of sale.

Some home warranty companies may charge a nominal transfer fee. Coverage for the new homeowner usually becomes effective on the closing date, ensuring continuous protection. Upon transfer completion, the seller provides the buyer with all relevant documentation, including transfer confirmation, original warranty certificates, and provider contact information. This ensures the buyer can easily activate the policy and file claims.