Who Pays for Home Warranty Insurance?

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 homeowners insurance, which protects against unexpected disasters, a home warranty specifically addresses issues that arise from regular use over time. This type of contract provides financial protection for homeowners when covered items like HVAC systems, plumbing, electrical wiring, or key appliances break down.

Payment During Property Sales

During a property sale, the question of who pays for a home warranty often becomes a point of negotiation between the buyer and seller. It is common for a seller to offer a home warranty as an incentive, especially in a buyer’s market. This gesture can make a property more appealing, provide buyers with reassurance about potential post-purchase repairs, and even help to differentiate the home from others on the market. The cost of a seller-provided home warranty is typically handled as part of the closing costs, or the seller might offer a credit to the buyer for this expense.

A seller might also purchase a home warranty to protect themselves from unexpected repair costs that could arise while the home is listed or under contract. If a covered system or appliance breaks down before closing, the warranty can help manage those expenses, potentially preventing delays or disputes in the sale. This provides a safety net for the seller, ensuring they are not liable for significant repair bills for items that fail just before the transfer of ownership.

Conversely, a buyer may choose to purchase a home warranty for themselves, even if the seller does not offer one. This decision is often made to gain peace of mind and protection against unforeseen repair costs shortly after moving into a new home. Buyers might opt for this, particularly in a seller’s market where they have less leverage to request a warranty from the seller. The buyer would then pay for the warranty directly to the home warranty company, either at closing or independently afterward.

Payment for Currently Owned Homes

For homeowners not involved in a real estate transaction, the responsibility for paying for a home warranty rests directly with them. They make a conscious decision to acquire this coverage for their current residence. Homeowners directly enter into a service contract with a home warranty provider and are responsible for the associated fees, which can be paid annually or monthly.

This direct payment reflects the homeowner’s choice to manage potential future repair costs for their home’s systems and appliances. The coverage provides a financial safeguard against unexpected breakdowns that can occur from normal wear and tear over time. Homeowners can purchase a home warranty at any point, regardless of how long they have owned their property.

Payment for Newly Built Homes

For newly constructed homes, the builder typically plays a significant role in providing or facilitating home warranty coverage. Builders often include a warranty as part of the new home purchase, meaning the builder pays for it. This can be a builder-backed warranty or a third-party, insurance-backed warranty purchased by the builder for the new homeowner.

This type of warranty provides coverage for defects in workmanship, materials, and major systems for a specified period, often following a 1-2-10 year structure for different components. While the cost of this warranty is usually incorporated into the overall purchase price of the new home, the homeowner does not incur separate monthly fees for this initial coverage. The builder’s provision of a warranty aims to assure the buyer of the home’s quality and provides a mechanism for addressing issues that may arise during the initial years of ownership.

Payment for Investment Properties

For investment properties, such as rental homes, the property owner or landlord is typically responsible for paying for home warranty insurance. This is considered a business decision to manage the upkeep and potential repair costs associated with maintaining the property for tenants. A home warranty can help landlords mitigate unexpected expenses that arise from the normal wear and tear of systems and appliances in a rental unit.

By covering these potential costs, the landlord can ensure timely repairs, which contributes to tenant satisfaction and helps protect the investment. The cost of a home warranty for a rental property can also be considered a tax-deductible operating expense for the property owner, allowing for more predictable budgeting for property maintenance.