What Is a Home Warranty When Selling a House?

A home warranty is a service contract designed to help homeowners manage unexpected repair or replacement costs for major systems and appliances within their residence. This type of contract provides coverage for items that break down due to normal wear and tear, safeguarding a homeowner’s budget from potentially significant expenses. Unlike homeowners insurance, which typically covers damages from perils like fire or storms, a home warranty focuses on the mechanical failures of essential household components. It acts as a financial safeguard, offering peace of mind by addressing issues that arise from the routine aging and use of a home’s operational systems and built-in appliances. This service agreement aims to reduce out-of-pocket costs when covered items inevitably require service.

Defining Home Warranties in a Home Sale

Within a real estate transaction, a home warranty offers protection to both the seller and buyer. This service contract covers unexpected repair or replacement expenses for major home systems and appliances that fail due to normal wear and tear after the sale. It acts as a financial cushion, preventing unforeseen costs during a period when new homeowners face significant financial outlays.

For sellers, offering a home warranty protects them from liability if an appliance or system breaks down shortly after closing. It reduces post-sale disputes and serves as an attractive incentive, enhancing marketability and potentially accelerating the sale. If a covered item malfunctions during the listing period, the seller can use the policy to address the issue, preventing delays or negotiations from a home inspection report.

Buyers gain reassurance from a home warranty, as it reduces financial uncertainty when purchasing a new home. Knowing that major components like HVAC, plumbing, or kitchen appliances are covered for typically one year helps new homeowners budget effectively. This protection is valuable as unexpected breakdowns can occur soon after moving in, safeguarding against immediate repair bills. The one-year duration offers defined coverage as the buyer settles into their new residence.

Understanding Coverage and Exclusions

A home warranty contract specifies covered systems and appliances for repair or replacement due to normal wear and tear. Inclusions often encompass major home systems like central heating, air conditioning, ductwork, plumbing (water lines, drains, sump pumps), and electrical systems. Water heaters are covered, along with kitchen appliances such as ovens, ranges, built-in microwaves, dishwashers, refrigerators, and garbage disposals. Laundry appliances, including washers and dryers, are also frequently part of standard plans.

It is important to understand what a home warranty excludes. Pre-existing conditions known or detectable before the warranty’s effective date are not covered. If an issue was noted during a home inspection, it is likely excluded. Structural components like the roof, foundation, load-bearing walls, windows, and doors are also excluded from standard coverage, as homeowners insurance or builder warranties typically address these.

Home warranties do not cover outdoor items like sprinkler systems, detached garages, pools, or spas, though these may be optional add-ons. Cosmetic defects, damage from improper maintenance or misuse, and issues covered by a manufacturer’s warranty are also excluded. The warranty covers primary mechanical failure but not secondary damages, such as water damage from a burst pipe, which falls under homeowners insurance. Reviewing the specific contract from the chosen provider is important to understand the scope and limitations of coverage.

Integrating a Home Warranty into the Sale Process

Incorporating a home warranty into a real estate transaction is often negotiated between the buyer and seller. A home warranty frequently becomes a discussion point during negotiations. Sellers may offer to purchase the warranty as an incentive to make their property more attractive and reassure buyers.

Alternatively, a buyer might request the seller to provide one, or they can purchase it themselves. The cost, which ranges from approximately $350 to $700 annually, can be split between both parties, depending on agreed-upon terms.

Once included, the warranty’s provision is formalized within the purchase agreement or as a separate addendum to the sales contract. This documentation specifies the warranty details, including the provider and coverage. This inclusion can also streamline the inspection process, as a seller might offer a warranty as a counter-offer to repair requests instead of undertaking repairs.

Financial handling of the home warranty occurs at closing. If part of the sales contract, it is included in closing costs. The title company or escrow agent collects funds for the warranty, ensuring the policy is paid for and activated for the new homeowner. This integration streamlines the transaction, allowing the warranty to become effective as the property changes hands.

Post-Sale Activation and Claim Process

After the home sale closes, the new homeowner takes steps to ensure their home warranty is active. If part of the real estate transaction, coverage begins immediately upon the closing date. If a buyer purchases a home warranty independently after closing, a waiting period (e.g., 30 days) may apply before coverage becomes effective. The buyer should contact the provider to confirm activation and receive policy documents.

Should a covered system or appliance break down due to normal wear and tear, the homeowner initiates the claim process. The first step involves identifying the issue and consulting the warranty contract to confirm coverage. The homeowner then contacts the home warranty company, through an online portal or phone, to file a claim and report the malfunction.

Upon receiving the claim, the home warranty company dispatches a qualified service technician to diagnose the problem, usually within 24 to 48 hours. When the technician arrives, the homeowner pays a service fee (deductible) for the visit, typically ranging from $75 to $125 per call, regardless of repair cost. The technician assesses the issue and, if covered, proceeds with repair or recommends replacement if the item is beyond repair or repair cost exceeds its value.