Who Pays for the Home Warranty: Buyer or Seller?

A home warranty is a service contract that covers the repair or replacement of major home systems and appliances due to normal wear and tear. This contract typically lasts for one year and can provide financial protection against unexpected breakdowns. It differs from homeowners insurance, which covers damage from perils like fire or theft, focusing instead on component failures from regular use. This article clarifies who typically bears the cost of a home warranty in various housing scenarios.

Payment in Real Estate Transactions

During a real estate transaction, the responsibility for paying for a home warranty can fall to either the buyer or the seller, or it can be negotiated between the parties. Sellers often opt to pay for a home warranty as an incentive to attract buyers, making their property more appealing in a competitive market. This also provides sellers with peace of mind by potentially reducing their liability for post-sale issues if covered items break down after closing. A seller’s warranty can protect them from unexpected repair costs during the listing period and can transfer to the new owner, offering continued coverage.

Conversely, buyers might choose to purchase their own home warranty if the seller does not offer one, or if they desire specific coverage or a particular provider. This is particularly common for older homes where systems and appliances may be more prone to failure. The cost of a home warranty, which typically ranges from $350 to $700 annually, can be incorporated into the sales contract and paid as part of the closing costs. An escrow agent or title company can collect these funds at closing, ensuring the policy is activated upon transfer of ownership.

Payment for Existing Homes

For homeowners not involved in a real estate transaction, the responsibility for a home warranty rests directly with them. Existing homeowners can purchase a home warranty at any time to protect their budget from unexpected repair expenses for major systems and appliances. The annual cost for a basic plan for existing homes generally ranges from $300 to $700, with more comprehensive plans potentially costing up to $1,200 per year. These plans often involve an additional service fee, typically ranging from $75 to $125, paid each time a technician visits the home for a covered repair.

Homeowners initiate the purchase of a new policy directly with a home warranty company, selecting a plan that aligns with their needs. Policies are typically annual contracts, and renewals are handled directly between the homeowner and the provider. This direct payment structure ensures homeowners maintain control over their coverage choices and financial commitments for ongoing protection.

Payment for New Construction

When purchasing a newly built home, the payment structure for a home warranty differs. Builders commonly include a home warranty as part of the new home purchase, providing assurance against defects. This is not a separate, upfront payment made by the buyer to a warranty company; instead, the cost is typically embedded within the overall purchase price of the new home. Builders may fund this warranty themselves or acquire it through a third-party warranty company.

These builder-provided warranties primarily cover workmanship and materials for a specified period, often one year for general items, two years for major systems like HVAC and plumbing, and up to ten years for major structural defects.

Understanding the Payment Process

The mechanics of home warranty payments are straightforward, regardless of who is responsible for the cost. For real estate transactions, payment is often due at closing, with funds managed by an escrow or title company. This ensures the policy is active simultaneously with the transfer of property ownership. In other scenarios, such as for existing homeowners, payments are typically made annually or through monthly installments directly to the home warranty company.

Common payment methods include a one-time lump sum for annual plans or recurring monthly deductions. When a home warranty is part of a real estate deal, the payment might be deducted from the seller’s proceeds or added to the buyer’s closing costs, handled by the closing agent. Once payment is received and processed, the home warranty policy is activated, and the homeowner receives confirmation of coverage. For homeowners, there is usually a 30-day waiting period before coverage begins, but for those acquired during a real estate transaction, coverage often starts immediately upon closing.