Is a Home Warranty Required at Closing in California?
Learn if a home warranty is legally required at California closing and how it's handled in real estate transactions.
A home warranty is generally not a legal requirement at closing in California. While common in real estate transactions, no California state law, real estate commission regulation, or lender requirement mandates its presence for a sale to proceed.
What a Home Warranty Is
A home warranty is a service contract designed to cover the repair or replacement costs of major home systems and appliances that break down due to normal wear and tear. This can include items such as heating, ventilation, and air conditioning (HVAC) systems, plumbing, electrical systems, water heaters, and kitchen appliances like ovens, dishwashers, and built-in microwaves. The purpose of a home warranty is to protect homeowners from unexpected, costly repairs.
A home warranty differs from homeowner’s insurance, which covers damage from sudden, unforeseen events like fires, theft, or natural disasters. Homeowner’s insurance protects the structure of the home and personal belongings, whereas a home warranty focuses on the functionality of specific systems and appliances. Home warranties typically involve an annual premium and a service fee paid each time a technician is dispatched for a covered repair.
Legal Requirements in California Real Estate
While newly constructed homes might include a builder’s warranty, distinct from a home warranty and governed by California Civil Code 896, existing home transactions do not carry such a mandate. A home warranty’s inclusion in a real estate transaction is a matter of negotiation between the buyer and seller.
California real estate transactions involve numerous legally required disclosures. These disclosures inform buyers about a property’s condition and known issues. Examples include the Transfer Disclosure Statement (TDS), which details the property’s condition, and the Natural Hazard Disclosure Statement (NHDS), which indicates if the property is in areas prone to natural risks. A home warranty is not among these mandatory disclosures.
How Home Warranties Are Handled in California Closings
Though not legally required, a home warranty frequently becomes a component of California real estate transactions. Sellers often offer one as an incentive, providing buyers peace of mind regarding the condition of major home systems and appliances. This can make a property more attractive.
Buyers may also request a home warranty as part of their offer, particularly when purchasing older homes where systems and appliances might be more prone to breakdowns. The decision to include a home warranty, and who will bear its cost, typically becomes a point of negotiation during the purchase agreement phase. The cost of a home warranty, often ranging from approximately $400 to $1,000 annually, can be paid by the seller, the buyer, or split between them.
If a home warranty is part of the agreement, its arrangement is usually finalized prior to or at closing, with the cost often factored into the overall closing costs. The title company or escrow agent typically handles the payment to ensure the policy is activated. Sellers sometimes purchase limited coverage during the listing period to protect themselves from liability for repairs before the sale closes. This practice can also benefit buyers as the warranty may transfer to them at closing, providing immediate coverage for unexpected issues in the initial period of homeownership.