Solved! Who Pays for a Home Warranty: the Buyer or the Seller?
This useful tool can benefit both parties in a home sale, but the question of who covers the cost depends on who stands to benefit the most.
Q: We’re purchasing an older home and would like a home warranty to protect us from unexpected costs in the first year. The seller is not offering a warranty as part of the sale; can we ask them to pay for a warranty as a condition of the sale, or do we have to buy it ourselves?
A: A home warranty is a great idea, especially for first-time home buyers who have chosen an older home, so you’re wise to be considering one. The answer to your question is that either the home buyer or the home seller can purchase a warranty. There are no limitations on who can buy a home warranty or when, and no established custom, so who pays for home warranty coverage will depend on a number of factors.
A home buyer’s home warranty serves a different purpose from a seller’s home warranty.
There are many reasons a home buyer might choose to purchase (or request the purchase of) a home warranty. Homes are large investments that are often the result of years of saving, or they’re contingent on the sale of a previous home, so finances are often tight and timing is critical. For buyers, a home warranty offers a sense of security. If a problem hasn’t presented itself to a home inspector and a major system or appliance fails in that first critical year after the purchase, the home buyer will be protected: they’ll pay a small service charge and the warranty will cover the repair or replacement. For home buyers who have sunk most of their savings into purchasing and furnishing a new home, the financial blow of a failed HVAC system, blown electrical, or even a broken oven could be devastating if they have not yet had time to rebuild their emergency savings fund. A warranty provides peace of mind as the buyers settle in and begin to save.
Sellers may be just as desperate for some peace of mind as buyers—maybe even more so. A home warranty can be a great enticement to a buyer, and it may be the detail that causes a buyer to choose one house over another similar one. In addition, a home warranty protects the sellers from charges levied against them by buyers who find unknown problems months after the sale and sue the sellers to cover the cost. The buyers will have the coverage provided by the warranty, leaving the sellers comfortably out of the picture.
A seller can choose to get a home warranty for financial protection while the home is on the market.
Some companies offer limited, specific seller’s warranties that provide coverage and protection only until the house has sold. Once a home is on the market, it needs to stay in the condition it was when the price was set, both to avoid the appearance of a major problem and to prevent the seller from having to make last-minute costly repairs when they may already have put their own savings into a down payment on a new residence. Strung between a mortgage on a house they haven’t sold yet and a down payment on a new one, sellers are in a financially precarious spot that could be broken by a furnace that won’t light or a water heater that breaks down. A home warranty can provide protection against this kind of disaster by covering the cost of the repairs.
Some home warranty companies offer free home warranty plans to the sellers.
The likelihood of major systems or appliances failing in the short time a home is on the market is smaller than the risk warranty companies take with longer-term policies, so several home warranty providers have struck a deal for sellers: If a seller agrees to purchase a home warranty for the eventual buyers of their home, the warranty company will provide a seller’s warranty covering major systems and large appliances only for the period of time between listing and closing—for free. This has several benefits for both the buyer and the seller; the seller purchases a 1-year warranty for the eventual buyer and gets months of coverage for free, and the buyer gets the benefit of the entire year of warranty coverage after purchase—not what’s left of the seller’s year-long warranty after the home has spent several months on the market.
Home buyers can purchase a home warranty at any time, but they’ll sometimes ask that a seller cover the cost of the policy for a year.
Home buyers and homeowners can purchase coverage from one of the best home warranty companies at any time—there’s no need to wait until you’re in the midst of a real estate transaction. Some home buyers may realize after the purchase that they underestimated the day-to-day costs of homeownership and want to safeguard against unexpected outlays of cash, or they may realize that repairs keep cropping up that cost more than they expected. Established homeowners may choose to purchase a warranty years after they buy a house, which is when the appliances and systems begin to age.
In any home purchase transaction, but particularly during the sale of an older home, an inspection will yield a number of small (and possibly larger) repairs that need to be made. If a seller has not already included a home warranty in the sale listing, it could work as a bargaining chip: The buyer can ask that the seller cover the warranty cost for a year in lieu of making many of the smaller repairs suggested by the inspector, or they can negotiate on the price of the house post-inspection. This is a reasonable request and could be offered by the seller at this point as negotiations proceed.
During a home sale, either the buyer or the seller can purchase a home warranty—but who actually ends up paying depends on the market.
Home warranties provide many benefits to both buyers and sellers, and they are great negotiating tools on both sides. In a seller’s market, where multiple buyers are clamoring for each listing, there’s no reason for the seller to pay for an additional incentive for the buyers. In strong seller’s markets, some buyers will even waive their right to an inspection in order to incentivize the seller to choose them over another buyer who has offered a higher price. As a result, the buyers will usually have no option but to pay for their own warranty in a seller’s market—and would be wise to do so, especially if they have waived an inspection.
In a buyer’s market, on the other hand, even sellers with well-priced, attractive listings may wait weeks or months for the right buyer to come along. Those sellers will need to offer every possible benefit to draw in potential buyers. A year-long home warranty is an attractive incentive, and it may pull buyers in to look, even if the home isn’t necessarily their ideal—hopefully long enough to decide to stay and purchase the home. Even if it’s not in the listing, a home warranty purchased by the seller can be thrown into the deal as it gets closer to the closing, to seal the deal—or the buyer can ask for one as a condition of the sale. Sellers are more likely to pay for a home warranty in a buyer’s market.
Purchasing a home warranty is worth the consideration, whether you are a home buyer or a home seller.
Regardless of who pays, a home warranty is a valuable tool during a real estate transaction. Protecting both the buyer and the seller during the transaction and afterward, the warranty provides both financial protection from expensive repairs and peace of mind. For both new and established homeowners, a warranty can also result in a home that is more consistently maintained: Many homeowners choose to do a DIY band-aid repair to small problems because they’re concerned that costs will get out of hand if they call in professional help, but those band-aid repairs can quickly add up to much bigger, more expensive problems. Warranties mean that policyholders will pay only a flat service charge (included in the contract) and a professional will come repair the problem without the policyholder incurring unpredictable costs. This means small problems can be repaired while they’re still small—instead of growing larger.