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The purchase of a new home can be a stressful event. There are just so many things to worry about, from unexpected issues with the home, to the mortgage process, to financial concerns. This article will cover the ways in which a home warranty can help to remove some of the anxiety and stress a new homeowner can experience during the first year or two after buying their new property.
Many homeowners are faced with new and unexpected expenses after they buy a home. This is often the worst time financially because they don’t have the savings or extra income to cover these expenses. A home warranty is a type of insurance that covers repairs to your home. It can cover the cost of repairing or replacing appliances, heating and cooling systems, plumbing, electrical wiring, and other household items that may suddenly break in the future.
Each home warranty company will have their own list of covered items, so it’s important to read the documentation for each plan carefully before purchasing or making a request for service. Some companies will offer multiple plans, which will vary in level or types of coverage. The annual cost of a home warranty can range from $450 to $750, depending on the company and level of coverage.
Here’s how a home warranty works:
When an issue arises with the home, the homeowner calls the warranty company. The warranty company will dispatch a service provider from their own list of preferred providers. Assuming that the issue is covered by the plan purchased by the homeowner, the repairs will be completed and the homeowner will be charged only a trip fee. The trip fee may range between $75 and $100, again depending upon the company and plan.
A home warranty can be a very good investment for new homeowners for several reasons. Just one major repair, if covered by the warranty, can create a full return on your investment. If the furnace fails, and is replaced under the plan, the homeowner can save thousands of dollars. When purchasing a home with older mechanicals (furnace, air conditioner, water heater, etc), having a home warranty in place will provide peace of mind, even if it is never utilized. You can think of it as health insurance for the home.
Occasionally, a homeowner will include a home warranty with the purchase of the home, giving potential buyers further incentive to write good strong offers on the listing. The new owner will have the option to renew the warranty after the initial term of the contract is up (generally 1 year). This is a great strategy for sellers if the home has elements which have not failed to the point of becoming defective, but are likely to require service over the next year.
Including a home warranty is also a good idea when listing a higher priced home, since the expense of the warranty is less significant when compared to the eventual sale price, and buyers may reasonably expect some sort of additional value and security.
If a home warranty is offered in a real estate listing, a buyer must still include it in their offer to purchase to insure that the seller is compelled to pay for a warranty at closing. Even if the initial listing does not mention a warranty, the buyer may request one as part of their offer. If the seller accepts the offer, it becomes part of the contract and they must pay for it at closing.
Other times, a home warranty will become part of negotiations after a home inspection has been completed. A home inspector may provide information to a buyer that certain elements of the home are likely to fail in the near future, and the buyer can include a request for a home warranty as part of their post-inspection negotiations.
Because of the significant security and protection a home warranty can provide, many real estate brokerages require that their agents educate their clients on the benefits of a home warranty and offer them an opportunity to purchase one. There is no financial benefit to the Realtor if a warranty is purchased. Sharing this information is simply an important part of the expert advice and counsel a Realtor should provide. If the client chooses to waive that opportunity, they may be asked to sign a document confirming that decision as evidence that the warranty was offered.
Many real estate brokerages will have a relationship with one particular warranty provider. This may allow clients of that brokerage to receive special pricing resulting from the volume that relationship presumedly creates. That said, any seller or buyer may choose what company to use if purchasing a home warranty, and a good Realtor will never put undue pressure on a client to work with any particular warranty provider.
Do you have any questions about home warranties that were not answered here? We’d love to hear from you!
