Should You Offer a Home Warranty When You Sell? What It Costs and When It Helps
What You’ll Learn
- What a seller home warranty is, and how it differs from homeowners insurance
- How buyer coverage and seller coverage during the listing period generally work
- What tends to affect the cost, and which fees fall on the buyer later
- How a warranty compares with a price cut, credit or repair, and how it appears at closing
- Why exclusions and caps matter, and why a warranty doesn't replace disclosure
A seller home warranty is a service contract that a seller buys, usually for the buyer, to help pay for certain repairs to a home's systems and appliances after closing. Some sellers offer one to give buyers a little more confidence about an older water heater or air conditioner. Others never consider it.
Whether a buyer should rely on a warranty is a different question, covered in home warranty vs. emergency fund. This guide is about the seller's side: what you'd be paying for, how it compares with other concessions, how it shows up in the contract and at closing, and what a warranty doesn't do.
What a Seller Home Warranty Is, and Isn't
Despite the name, a home warranty is generally a service contract. The Federal Trade Commission describes home warranties as service contracts that typically cover repair or replacement of items like appliances or air conditioning systems for a set period, at an added cost.
A few distinctions help:
- It isn't homeowners insurance. Insurance generally covers sudden damage from events like fire or storms. A home warranty is aimed at systems and appliances that break down. One doesn't replace the other.
- It isn't a builder or manufacturer warranty. Those come with new construction or new products. A home warranty is a separate contract bought from a warranty company.
- What's covered depends on the plan. Many plans cover parts of the heating, cooling, plumbing and electrical systems, plus listed appliances. Add-ons, such as pool or well pump coverage, may cost more.
How home warranties are regulated varies by state. In some states, the insurance department oversees home warranty companies. California's Department of Insurance, for example, licenses home protection contract companies and warns that home warranties contain many exclusions.
Two Kinds of Coverage: For the Buyer and During the Listing
When people talk about a seller home warranty, they may mean one of two things.
A plan for the buyer, paid by the seller
This is what the term usually refers to. The seller agrees to pay for a plan that covers the buyer for a set term starting at closing. It's usually negotiated as part of the offer and paid at closing.
Seller coverage during the listing period
Some home warranty plans offer coverage for the seller while the home is on the market. If a covered system fails during the listing, the plan may help pay for the repair, subject to its terms. Availability, cost, what's covered and what happens if the home doesn't sell all vary by plan. Read the contract, or ask the company to explain the terms in writing.
What a Seller Home Warranty Costs
Pricing varies widely, so it's best to get written quotes rather than rely on a general range. Factors that often affect the price include:
- The size and type of home, such as a condo versus a larger detached house
- The plan level and the systems and appliances it lists
- Add-ons like pools, spas, septic pumping, well pumps or extra refrigerators
- The term of coverage and the state where the home is located
The plan price isn't the only cost. The FTC suggests looking for deductibles or fees for each service call, along with limits on how much the company will pay. When the buyer files a claim, those fees are typically paid by the buyer, not the seller, so it's worth knowing what they are when you compare plans.
When a Seller Home Warranty May Help
A warranty won't sell a home on its own, and there's no assurance it will lead to a faster sale or a higher price. It may be worth considering when:
- Major systems or appliances are older but working. A warranty can give buyers one more way to plan for a repair down the road.
- Buyers are asking for something. If a buyer requests help after an inspection, a warranty is one option to put on the table.
- The home sits vacant during the listing. Listing-period coverage, where available, may help with a covered breakdown while no one is living there.
- You want a concession with a known cost. A plan has a set price, unlike a repair whose final bill may be uncertain.
It may matter less when systems are new and still under manufacturer warranties, or when buyers are more focused on price or repairs.
A home warranty is one concession option. It isn't a promise of a faster sale or a higher price.
How a Warranty Compares With Other Concessions
Sellers have several ways to respond when buyers want help. Each works differently:
- A price reduction lowers the sale price, which can also lower the amount the buyer finances.
- A closing cost credit helps the buyer with cash at closing, subject to the limits set by the buyer's loan program.
- A repair fixes a specific, known issue before closing.
- A home warranty helps pay for some future breakdowns of covered items, subject to the plan's terms.
A warranty doesn't fix a problem that's already been found. If an inspection turns up a failing furnace, a buyer may prefer a repair or credit. For a deeper look at how credits and other incentives can fit a sale, see seller concessions and when they help.
How It Shows Up in the Contract and at Closing
If you agree to provide a warranty, it should be written into the purchase contract or an addendum. Many standard forms include a home warranty section. Common details include:
- Who pays for the plan, and any maximum amount the seller will pay
- Who chooses the plan and the company
- Whether listing-period coverage is included
- That the plan is ordered before closing so coverage can start on time
The cost is often paid at closing out of the seller's proceeds and shows up on the closing statement. The buyer's lender will see it there. Depending on the loan program, the lender may review it along with other seller-paid items, so the buyer's licensed loan officer can confirm how it will be treated. Your closing agent can help you see how it affects your estimated net proceeds.
The Limits: What a Home Warranty Won't Cover
The California Department of Insurance warns that many buyers only discover a warranty's exclusions, conditions and limits when a claim is denied. Common limits to look for include:
- Exclusions. Specific parts, causes of failure or types of damage may not be covered.
- Pre-existing conditions. How a plan treats problems that existed before coverage started varies by contract and state. Some contracts exclude or limit them. In California, the Department of Insurance says home warranties cover defects that existed when the home was bought, subject to each contract's exclusions and limits. Read how the specific plan handles them.
- Coverage caps. Plans often set a maximum the company will pay per item, per claim or per term.
- Maintenance requirements. A claim may be denied if an item wasn't properly maintained.
- Repair versus replace. Many contracts let the company decide whether to repair or replace an item, and which contractor does the work.
Reading the sample contract before you agree to a plan can help you set accurate expectations with buyers.
A Warranty Doesn't Replace Disclosure
Offering a home warranty doesn't change your duty to disclose known problems. Disclosure rules vary by state, but in general, sellers are expected to share known material issues as their state requires, whether or not a warranty is offered.
A warranty also isn't a substitute for fixing a problem you've agreed to repair. If a known issue isn't covered by the plan, or is excluded as pre-existing, the buyer may look to the contract and the disclosure instead. To see what buyers look for, read how buyers read a seller's disclosure. A real estate attorney can explain your state's requirements.
Questions to Ask Before You Offer a Warranty
- What exactly does the plan cover, and what does it exclude?
- How does it handle conditions that existed before coverage started?
- What are the coverage caps and the service call fee?
- Is listing-period coverage available, what does it cover, and what happens if the home doesn't sell?
- When is payment due, and can it be paid at closing?
- Is the company licensed or registered where required in your state, and what is its complaint history?
Frequently Asked Questions
Does offering a home warranty help a home sell?
It may help some buyers feel more comfortable, especially with older systems. It doesn't promise a faster sale or a higher price.
Am I required to offer a home warranty?
Generally, no. A warranty is typically a negotiated item. If you agree to one in the contract, though, you're expected to provide it as written.
Can the buyer choose the plan?
That depends on what the contract says. The buyer and seller can negotiate who selects the plan and the maximum amount the seller will pay.
Does a warranty protect me from claims about problems I knew about?
No. A warranty doesn't replace your disclosure duties. Known issues should be disclosed as your state requires. A real estate attorney can advise on your situation.
The Bottom Line
A seller home warranty is one way to respond to buyer concerns about systems and appliances, with a cost you know up front. It works best when you understand what the plan covers, what it excludes and how it fits next to other concessions. Write it clearly into the contract, compare plans in writing, and keep disclosing known issues as your state requires.
This article is general information, not legal or financial advice. Home warranty terms, pricing and regulation vary by company, plan and state, and your purchase contract's wording controls. Talk with a real estate attorney about your specific situation. Advice4Homeownership is a publisher, not a home warranty company.
