Who Typically Pays for a Home Warranty Plan?

A home warranty plan is a service contract that covers the repair or replacement of major home systems and appliances due to normal wear and tear. This differs from homeowner’s insurance, which typically covers damage from unexpected events like fires or natural disasters, not routine malfunctions. Home warranties offer a way to manage potential repair costs, providing financial predictability for homeowners. Payment responsibility can vary significantly based on circumstances.

Homeowners and Occupants

Many homeowners purchase a home warranty plan for their primary residence. This provides financial protection against unpredictable costs of repairing or replacing essential home systems and appliances. A plan can help mitigate significant out-of-pocket expenses for issues like a malfunctioning HVAC system or a broken water heater.

Homeowners pay for a warranty for budget predictability and reduced financial stress. Home warranty plans usually involve an annual or monthly premium, typically ranging from $300 to $700 per year, and a service call fee, often between $75 and $125, paid each time a technician visits. The homeowner is responsible for both the ongoing premium and these per-service fees. While home warranties for a primary residence are generally not tax-deductible, they can offer a financial safety net for unexpected repairs.

Real Estate Transaction Parties

Payment for a home warranty plan often arises during a real estate transaction, where the responsibility is a point of negotiation between the parties involved. Sellers might pay for a home warranty as an incentive to attract buyers, especially in a competitive market, or to provide reassurance about the condition of older systems and appliances. This can help prevent post-sale disputes over unexpected breakdowns. A seller’s warranty might also offer limited coverage during the listing period, protecting them from repair costs that could arise before closing.

Buyers also play a role in home warranty payment. They might request that the seller include a home warranty as part of the purchase agreement, or they may choose to purchase one themselves after the sale closes. If included in the sales contract, the cost of the warranty is often settled at closing through the escrow or title company, with coverage typically beginning on the closing date.

Real estate agents sometimes cover the cost of a home warranty as a closing gift or a client appreciation gesture. This provides additional peace of mind for their clients and can be a strategic move to differentiate their services. Such gestures foster positive client relationships and address potential concerns about immediate repair needs in a new home. The decision of who pays in these scenarios is largely dependent on the specific negotiation dynamics of the real estate market and the terms agreed upon in the sales contract.

Builders and Developers

In the context of new construction, builders and developers frequently include a home warranty plan as part of the overall new home package. This practice differs from resale scenarios, as the warranty is integrated from the outset. The builder or developer typically pays the premium for this warranty, effectively incorporating its cost into the total price of the new home.

These warranties for new homes often cover structural components, as well as systems and appliances, for a specific period. While new appliances and systems come with manufacturer warranties, a builder’s home warranty provides broader protection, extending beyond those initial coverages. This offers new homeowners added assurance regarding the quality and functionality of their newly constructed property.

Property Owners for Rental Units

Property owners of rental units frequently pay for home warranty plans to protect their investment and manage ongoing maintenance expenses. For landlords, a home warranty can help mitigate the financial impact of unexpected breakdowns of systems like HVAC or appliances such as refrigerators and washing machines. This helps ensure functional amenities for tenants, which can contribute to tenant satisfaction and retention.

A home warranty for a rental property helps landlords budget for repairs more predictably, as they typically pay an annual premium and a service call fee per incident rather than large, unpredictable repair bills. The annual premium for a rental property home warranty can range from $400 to $800, with service fees similar to those for primary residences. An important financial consideration for landlords is that the cost of a home warranty for a rental property, including both the premium and service fees, is generally considered a tax-deductible operating expense, which can reduce taxable rental income.