What Is a Home Warranty for a Seller?

A home warranty is a service contract designed to cover the repair or replacement of major home systems and appliances that fail due to normal wear and tear. Unlike homeowner’s insurance, which protects against unexpected disasters like fires or floods, a home warranty specifically addresses issues with items such as HVAC systems, plumbing, electrical components, and common kitchen appliances. It offers a financial safety net by reducing the burden of unforeseen expenses that can occur shortly after moving into a new residence.

Understanding a Home Warranty from a Seller’s Viewpoint

When a property is listed for sale, a home warranty can serve as a strategic offering from the seller. This service contract is typically purchased by the seller for the buyer’s benefit, providing coverage for a set period, usually one year, after the sale concludes. The seller’s motivation often involves addressing potential buyer concerns about the condition of the home’s components.

Offering a home warranty can enhance a property’s appeal, especially in a competitive market, by providing peace of mind to prospective buyers. It signals the seller’s confidence in the home’s condition and can alleviate fears about costly repairs immediately following the purchase. This can make a listing more attractive and potentially expedite the sale process. It also differs from the seller’s disclosure obligations, which legally require sellers to reveal known defects of the property.

The inclusion of a home warranty can also help mitigate post-sale disputes. If a covered item malfunctions after closing, the buyer can typically file a claim with the warranty company directly, reducing the likelihood of contacting the seller for resolutions. This can protect the seller from unforeseen repair costs that might arise during the listing period or shortly after the transaction is complete. Ultimately, providing a home warranty is a decision that can smooth negotiations and instill greater confidence in the buyer.

Standard Coverage and Exclusions

Common inclusions often feature heating, ventilation, and air conditioning (HVAC) systems, plumbing, and electrical wiring. Major kitchen appliances like ovens, ranges, dishwashers, built-in microwaves, and garbage disposals are also frequently covered. Coverage also extends to water heaters and sometimes garage door openers.

A significant exclusion in most home warranty contracts pertains to “pre-existing conditions.” Warranty providers usually require items to be in good working order at the time coverage begins. Other common exclusions involve structural components of the home, such as walls, foundations, and roofs, as these are typically addressed by homeowner’s insurance or builder’s warranties.

Home warranties also generally exclude damage from improper maintenance, neglect, cosmetic issues, or external factors like natural disasters. Optional systems like pools, spas, septic systems, or well pumps are often not part of a basic package but can be added for an additional fee. When a covered item breaks down, the homeowner typically pays a service call fee, which functions like a deductible and can range from $75 to $125 per claim. There are also coverage limits, meaning the warranty company will pay up to a predetermined maximum amount for repairs or replacements, and the homeowner is responsible for any costs exceeding this limit.

The Seller’s Process for Providing a Home Warranty

The process of a seller providing a home warranty typically begins during the negotiation phase of a home sale. Often, the offer of a home warranty is included as an incentive to buyers or requested by the buyer as part of the purchase agreement. Real estate agents frequently play a role in recommending providers or coordinating the purchase, though sellers can also conduct their own research to select a company.

Once a provider is chosen, the home warranty is formally incorporated into the purchase agreement, often through a specific clause or addendum. Payment for the home warranty is usually made by the seller, though this is negotiable and can sometimes be shared with the buyer. The payment for the warranty is typically handled at closing, often deducted from the seller’s proceeds, rather than requiring an upfront payment at the time of listing.

A crucial step is ensuring the warranty transfers correctly to the buyer upon closing. Most home warranties are transferable, and the process generally involves notifying the warranty provider of the change in ownership and providing the new homeowner’s details. Some providers may require a small transfer fee. After the closing, the buyer assumes direct responsibility for interacting with the warranty company for any claims, and the seller’s involvement with the warranty typically concludes.