Who Pays for a Home Warranty: Buyer or Seller?
Learn about the various parties and situations determining who pays for a home warranty, from initial purchase to renewal.
A home warranty is a service contract covering the repair or replacement of major home systems and appliances breaking down due to normal wear and tear. This coverage provides a financial safeguard against unexpected repair costs, complementing standard homeowners insurance which typically addresses damage from perils like fire or storms, not appliance malfunctions. It offers homeowners budget predictability and peace of mind by mitigating the financial impact of equipment failures.
When the Home Buyer Pays
Homebuyers often choose to purchase a home warranty themselves after closing. This provides peace of mind and protection against unforeseen repair expenses that can arise shortly after moving into a new property. Opting for a home warranty allows buyers to manage their financial risk, especially when the condition of a home’s older systems or appliances is uncertain.
Buyers typically acquire these contracts directly from a home warranty provider. The average annual cost for a home warranty can range from $300 to $900, with monthly payment options usually falling between $25 and $90. In addition to the annual or monthly premium, homeowners generally pay a service fee, often between $75 and $150, each time a technician is dispatched for a covered repair.
When the Home Seller Pays
Often, home sellers pay for a home warranty for the buyer as a strategic incentive. This makes a property more appealing, particularly in a competitive market, and potentially expedite the sale process. Providing a home warranty also serves to protect the seller from potential post-sale disputes or claims regarding system or appliance failures.
When a seller provides a home warranty, the cost is usually incorporated into the sales contract and paid at closing. This arrangement can alleviate buyer concerns about immediate repair costs, which is a significant benefit for new homeowners. Some home warranty companies offer a limited seller’s warranty, sometimes at no additional cost to the seller, covering the property during the listing period until the sale concludes.
When Other Parties Contribute
Other parties may also contribute to a home warranty’s cost. Real estate agents, for instance, sometimes purchase a home warranty as a closing gift for their clients. This practice can foster goodwill, enhance client satisfaction, and potentially lead to future referrals by demonstrating the agent’s commitment to their client’s long-term well-being in their new home.
For newly constructed homes, home builders frequently provide a builder’s warranty. A builder’s warranty typically covers structural components, workmanship, and systems like plumbing and electrical for a defined period, often one to ten years. While these warranties are provided by the builder, they generally do not cover household appliances, which are usually protected by manufacturer warranties or can be covered by a separate home warranty.
Renewing a Home Warranty
Once the initial home warranty coverage period expires, typically after twelve months, the responsibility for renewal almost always falls to the homeowner. If the homeowner wishes to continue receiving protection for their home’s systems and appliances, they must proactively renew the contract.
The renewal process involves direct payment to the home warranty company, annually or monthly. While some home warranties are transferable during a real estate transaction, the act of renewal after the initial term is solely at the discretion and expense of the current property owner. This ensures continuous coverage against unexpected breakdowns as the home ages.