Buyers vs. sellers home warranty

Differences between a homebuyer warranty and a sellers warranty

As the names imply, a homebuyer warranty is for someone who is buying a new home and wants to protect their new investment, and a homeowner, or seller, warranty is for someone who currently owns a home and wants extra protection while it sits on the market.

During a competitive seller’s market, the buyer might waive their right to an inspection, meaning they’re unsure of the life span or condition of the systems or appliances. In this instance, it makes sense to purchase a home warranty so you’re not stuck with any surprise repairs within the first year of ownership.

Although buying a home warranty usually happens during a real estate transaction, you can purchase a home warranty at any time.

For a seller, you don’t want unforeseen repairs to cause any hiccups during the process. A warranty can ensure none of these major systems break down and cause problems during the sale.

Both policies can cover the same items, including heating and cooling systems, refrigerators, washers and dryers, plumbing, electrical systems, ovens and dishwashers. Keep in mind that home warranties generally do not cover anything that the seller discloses in the listing or anything faulty in the inspection report.

Costs

For sellers, these plans are often limited since they’re only used while the home is on the market or in escrow.

But you may be able to get coverage for free, according to Erin Hybart, a real estate agent in Louisiana. Some companies offer this incentive if you agree to purchase a home warranty for the buyer after the house closes. As always, check with the home warranty provider first to know what the costs and terms are.

For buyers, you may be able to get the seller to cover the expense. Otherwise, you can expect to pay between $450 and $600 a year for a standard home warranty policy.

» FIND OUT: Is a home warranty worth it?

Home warranty benefits for the seller

If you’re selling a house, a home warranty works by saving you money on repairs while you are looking for a buyer. Here are a few of the major reasons why a seller would want to purchase a warranty while their home is on the market:

• Incentive for buyers: According to Hybart, “In a buyer's market, offering a home warranty could sweeten the pot because if the buyer chooses not to take the seller up on the offer, they could ask for those funds to be applied to a different expense like closing costs.” This offers an affordable incentive and lets buyers know they’ll have security against expensive repairs.
• Protection for older appliances: Even if your appliances are in working order, they may be older and will fail at some point. Sellers coverage can guard against these potential repair costs while your home is listed.
• Help with maintaining a budget: Selling a home comes with many added costs, especially if the home is vacant when you sell, since you have to keep up with mortgage payments until the sale closes. The last thing you want is unforeseen costs due to a broken appliance or home system, which could delay the sale.
• Peace of mind: Selling a home can be a stressful time, and paying the extra money for a warranty offers peace of mind. Hybart said you won’t “have to worry about something expensive breaking the day after closing.” Instead, you have a plan in place to handle any issues that pop up.

Home warranty benefits for the buyer

Homebuyers can benefit just as much from warranty policies as sellers do. The overall cost of a warranty plan, including service fees, often comes out lower than the price of parts and labor on multiple major repairs. When something breaks, the warranty provider connects you with a licensed local contractor.

You only have to pay a service fee — a flat rate of $75 to $125, depending on the terms of your contract — for the contractor to visit and diagnose the problem, and the home warranty company pays the rest. If the local technician is unable to repair the appliances or system, the warranty company pays for a replacement item.

Here are some of the most significant reasons a buyer might want to take out a policy:

• Financial protection: A home purchase is likely the biggest purchase of your life. You want to ensure it stays in working order. A home warranty can be a cost-effective way to protect your new investment.
• Easy access to repairs: When you have a home warranty, you don’t have to figure out what local contractor or technician to choose. Home warranty companies have a network of licensed, insured contractors and find one for you. This is one less thing to think about as you’re settling into your new home.
• Potential to pass costs off to the seller: In some cases, a buyer can request that the seller pays for the homebuyers warranty as part of the sale process. If the buyer is in a strong position, a seller will often agree to include a home warranty.
• Limits out-of-pocket expenses: There are a number of costs that go along with buying a new home, such as moving expenses and closing costs. By taking out a home warranty, you can protect your budget against unforeseen costs.

Bottom line: When do you need a home warranty service agreement?

A home warranty service agreement is never a required purchase. Still, the peace of mind you get knowing that your investment and finances are protected can make it worthwhile. Whether or not you decide to purchase a plan either as a seller or as a buyer should depend on several factors: the condition of your home’s appliances and systems, the condition of the housing market and how willing you are to risk paying for repairs out of pocket. We suggest working with a trustworthy real estate agent to help make the best decision for your specific circumstances. Next, read about how to sell and buy a house at the same time.