Should I Offer A Home Warranty When Selling My House?


Maybe you have seen other home listings with home warranties, or perhaps your real estate agent has suggested buying one. Whatever the reason, if you are wondering whether or not to offer a home warranty when selling your house, read on.

Should I Offer A Home Warranty When Selling A Home? Yes, you should offer a home warranty when selling your home. It can help to sell your home faster, and it may also command a higher price. Some home warranties will also cover your home while it is on the market. However, there are a few circumstances in which it is not worth buying a home warranty.

Let’s take a closer look at home warranties.

How Can A Home Warranty Help Sell My House?

A home warranty provides an extra level of reassurance and security to a buyer.

Imagine a buyer who is considering two or more homes, all of which are very similar in price and condition. The house with a home warranty is going to be the better bet.

Why?

Because if something should go wrong in the first year, such as the boiler breaking down, the home warranty will cover the cost of repairs.

Therefore, if a potential buyer is looking for ways to choose between their options, the property with the home warranty is likely to be a more attractive proposition than the one without.

What Is A Home Warranty?

A home warranty covers the cost of repairs or replacement to the major built-in appliances and systems in your home. The issue with the appliance or system must be caused by normal wear and tear to qualify. 

You make a payment at the beginning of the coverage period. Then, if one of the major systems or an appliance in your home breaks down during your coverage period, the warranty will, with some exclusions, cover the cost of repairs or replacement.

Is A Home Warranty The Same As Insurance?

A home warranty, also known as a home service contract, is not the same as an insurance policy.

Insurance policies provide money when an unexpected event, such as a fire or a storm, cause damage or loss. Home warranties provide for the repair or replacement of appliances and systems within your home.

An insurance policy is considered a financial “product” and, as such, is subject to specific legal regulations. A home warranty or a home service contract is viewed as a “consumer product” and is not overseen by financial regulators.

Is It The Same As A Builders New Home Warranty?

A home warranty is not the same as a builder’s new home warranty.

The new home warranty that developers and builders provide with a brand new dwelling covers the craft and the materials used to build the house. It does not cover breakdowns of systems and appliances.

What Does A Home Warranty Cover?

The exact coverage varies from company to company. The majority of home warranty providers offer a basic policy alongside optional extras. A typical standard policy covers:

  • Heating systems
  • The electrical system
  • Ductwork
  • Interior plumbing
  • Water heater
  • Range, cooktop, oven
  • Dishwasher
  • Refridgerator / Freezer / Fridgefreezer

Other items that may be included or offered as an extra include:

  • Washer / Dryer
  • Air conditioning
  • Garbage disposal
  • Garage door opener
  • Pool heating and filtration

Limits To Home Warranty Coverage

Some home warranty companies place a cap on the amount they are willing to pay out for each system or appliance. Others list a set fee for the replacement of an appliance or system that cannot be repaired or one that would cost too much to repair.

It is also standard practice to exclude commercial-grade systems and equipment. This is not an issue for most people, but if you have high-end appliances, such as GE Monogram, it can be a problem as they are regularly installed in homes but are classed as “professional” or commercial grade.

Finally, you may encounter problems if any part of your home is used for business. This can invalidate your home warranty as it is considered to place undue strain on home systems. This is true even if the system breaking down is not used in your business.

What Does A Home Warranty Not Cover?

Home warranties do not cover the structure of your home or your possessions. Therefore things such as windows, fireplaces, or solar panels are not covered. The only exception to this is if you buy a home warranty with specific coverage for the roof.

There are also exclusions for how the damage or a breakdown happens.

Damage caused to, or the breakdown of an appliance or system is only covered if it is caused by normal wear and tear. If the breakdown or damage has been caused by an accident, misuse, neglect, or a failure to carry out proper maintenance, it will not be covered.

There are also exclusions for repairs or replacement required due to a pre-existing defect or lack of maintenance.

There is another exclusion to look out for, especially when considering a home warranty to offer when you sell your house. The home warranties offered by some companies are not transferable. Therefore if you purchase one, it cannot be transferred to the new owners.

When Should I Buy A Home Warranty?

If you want to offer a home warranty as part of your house sale, consider buying one as soon as you decide to put your home on the market. 

The reasons for this are threefold.

  1. Imagine you put your home on the market, and the following week, the water heater breaks down. You call out a plumber and discover it cannot be repaired and instead must be replaced. You now have two options:
    1. Pay for a new water heater and installation.
    2. Tell prospective buyers it needs replacing and negotiate a reduction in the house price.
  2. A home warranty does not cover pre-existing conditions. When your potential buyers have their home inspection, any defects identified in the inspection report will be excluded from the warranty.

    Again, let’s use the water heater as an example. You are unaware there is an issue with the heater. The home inspector finds a fault and says it need to be replaced. If you have already purchased a home warranty, the repair or replacement will be covered.

    If you haven’t bought a home warranty, the water heater will be excluded, leaving either you or the potential buyers on the hook for the cost.

    This also applies to situations where an inspector says a system or appliance is coming to the end of its useful life. For instance, if an inspector says the water heater will need replacing soon, it will be excluded from warranty coverage from that date forward.
  3. The majority of home warranties have a 30-day exclusion period. This means that anything that happens, or is identified during the first 30 days of the warranty, is not covered.

Companies do this to minimize the chance of homeowners experiencing a breakdown, then rushing out to buy a home warranty, and making a claim a day or two later.

If you have a 30-day exclusion, there is a danger your buyer’s home inspection could take place during that period. This will put you in the position outlined in point two.

How Much Does A Home Warranty Cost?

On average, a home warranty costs between $350 and $750 per year. The exact amount will depend on where you are in the country and what is covered.

How Do I Choose A Home Warranty?

Ask friends and family if they have a home warranty and what their experience has been. You can also check the Better Business Bureau and local review sites to see what others have to say.

The National Home Service Contract Association is a non-profit trade association with a code of practice to which member businesses must adhere. While they have no legal control over their members, it is an excellent place to start looking for a reputable company.

You should also take your time and carefully review the terms and conditions of any home warranty to ensure it is both transferable to a new homeowner and provides the coverage you are looking for.

When Should I Not Offer A Home Warranty When Selling My House?

Offering a home warranty with your house is primarily a marketing tool. It gives potential buyers a reason to choose your home over another. 

Suppose you have a home unlike others in the area, or you are selling at a time with very little inventory and consequently very little competition. In that case, a home warranty won’t hurt, but it will not give you any competitive advantage.

Final Thoughts

In most circumstances, it is a good idea to offer a home warranty when selling your house. It provides potential buyers with an additional layer of reassurance that they will not be facing huge bills if something goes wrong.

Just be sure to check the terms of the warranty to ensure it is transferable.

 

Geoff

Geoff Southworth is the creator of RealEstateInfoGuide.com, the site that helps new homeowners, investors, and homeowners-to-be successfully navigate the complex world of property ownership. Geoff is a real estate investor of 8 years has had experience as a manager of a debt-free, private real estate equity fund, as well as a Registered Nurse in Emergency Trauma and Cardiac Cath Lab Care. As a result, he has developed a unique “people first, business second” approach to real estate.

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