If you’ve ever bought or sold a house, your Realtor probably talked to you about home warranties. And if you’ve never had experience with a home warranty, it can be overwhelming & confusing. As a real estate Broker, I’m breaking down misconceptions about home warranties, what you should know before you purchase one, & how they can help you sell your home.
What To Know About Home Warranties
What Is A Home Warranty?
I frequently compare home warranties to health insurance. You pay a monthly fee (or can be paid annually) in case something goes wrong. If something does go wrong, then you pay a “copay” to cover the surprise expense. American Home Shield explains that a home warranty is “an annual service contract that covers the repair or replacement of important appliances and systems components that break down over time. “
What A Home Warranty Is Not
Home warranties are not home insurance. They will not cover the replacement of your home in case of a fire or flood. Home insurance will fix the damage caused by a flood or fire, but warranties will fix the item that is broken, but it does not repair/replace collateral damage items. For example, if your hot water tank leaks, your home warranty will cover replacing or repairing the hot water tank, but it won’t cover replacing the wood floors that were damaged from the leak.
There Isn’t Just One
In fact, there are numerous companies that offer home warranties. AHS, 2-10, & First American are some of the bigger named home warranty companies, but there are several more to choose from. Much like when shopping for health insurance, each company offers tiered plans with varying coverage. If you’re considering purchasing a warranty, it’s important to do extensive homework on each company to see which one fits your needs & budget.
Why Someone Might Need A Home Warranty
I personally keep one on each buy & hold property that I own. Since keeping them, I’ve had a stove die, pipes burst (twice!), a toilet malfunction, a clogged sink, a thermostat quit, a refrigerator leak, and a faucet malfunction. For each of those items, I paid a service fee (similar to a copay) of $100. That $100 was all I had to pay fix the problem- both parts & labor. For the stove alone, had I not had a home warranty, I would have paid over $3,000 just for the special-order stove (it was an odd size). They offer peace of mind to homeowners in case big (or little) items malfunction.
How Much Does A Home Warranty Cost?
Like health insurance, companies and plans vary. However, you can typically expect $600-$800/year. That fee is paid annually and if any service requests are filed, then the $100 “copay” is all that is paid out of pocket; however, some home warranty companies have ever cheaper copay amounts.
How A Home Warranty Can Help You Sell Your Home
If I have a client trying to sell an older home with older pipes, an aging hot water tank, or an HVAC unit living on borrowed time, I suggest that they provide one. Buyers are rightfully concerned with seeing older items, and they fear the expense of those items quitting not long after closing. By a seller providing a home warranty, they have the peace of mind that if those items quit, they’ll be covered. Home warranties are good for one year, so buyers typically would have one year’s coverage paid by the seller, but they can renew at their own expense. If a home is older, I strongly suggest providing one & including that in the marketing of the home.
Other Home Warranty Information
- Some companies, like 2-10, offer Realtors discounts on home warranties for their own properties.
- If you sell your home that has an active warranty & do not transfer it to the buyer, many will allow you to “cash out” of what value is left on the annual amount.
- Some companies require an HVAC pre-certification (which is an additional expense) to provide HVAC coverage. Be sure you check this before you purchase a plan!
- If you sell your home that has an warranty & wish to transfer the remaining time left on the annual plan to the buyers, you can typically do so at no charge.