The last thing a homebuyer wants after closing is a malfunction in their new home, but it can happen. It's a good idea to get a home protection plan or warranty so you don't have to worry about it now—or as you go forward. It will cover the associated costs if something goes wrong.
Who Pays for a Home Warranty?
Whether the seller or buyer pays for the home protection plan and home warranty coverage will depend on your local customs. It's normal for a seller to pay for the coverage in many locales, because it's a seller benefit. The buyer won't be calling the seller after closing if something breaks.
Many real estate agents will also give buyers a home warranty as a closing gift.
How Much Does a Home Warranty Cost?
These plans are fairly inexpensive, typically around several hundred dollars per year, but it can depend on the coverage and deductible. Home warranty companies sometimes run specials whereby they'll either discount policy prices or offer additional coverage for the same price.
Policies are generally prepaid for a year in advance. They can be renewed by the homeowner when they expire.
How Do Home Warranties Work?
Some plans provide for specific types of coverage, but most operate similarly and contain common verbiage.
- The homeowner calls the home warranty company if a home system or appliance breaks or stops working.
- The home warranty company calls a provider with which it has a business arrangement.
- The provider calls the homeowner to make an appointment.
- The provider fixes the problem. The home warranty company will pay to replace and install the appliance if it can't be repaired, depending on the contract coverage.
- The homeowner pays a small trade service fee for the visit—anywhere from $50 to $100. You can negotiate this amount when you sign up for a plan.
Home Warranty Coverage
You'll want to ask what's specifically covered under your plan, because all plans are unique. Ask your real estate agent whether upgrades are available, and pay close attention to whether the home warranty company will pay for repairs to make certain types of systems or appliances compliant with new regulations.
General Coverage in a Home Warranty
Issues that are commonly covered include:
- Air conditioning
- Kitchen appliances
- Washers and dryers
- Water heater
- Ductwork to code
- Garbage disposals
- Inside plumbing stoppages
- Ceiling fans
- Electrical systems
- Range and oven
The coverage for a home warranty plan can vary from state to state and from policy to policy, so ask to see a sample copy of a policy before you commit. Some homeowners swear by home warranty plans, and others loathe them.
What Might Not Be Covered
Not every mishap or breakdown will be covered by your plan. Home warranties might not cover:
- Outdoor items such as sprinklers
- Faucet repairs, although this can vary
- Refrigerators, washers, and dryers, or garage door openers
- Spa or pools unless specific coverage is requested
- Permit fees
- Items that were broken before closing
- Exclusions noted in the policy
Be sure to check your specific policy to learn what is and isn't covered.
What Can Cause a Denial of Payment?
Sometimes, it can seem like the company is actively looking for a way not to cover a claim, and that assumption can be accurate at times. It may happen for a few reasons, including:
- Improper maintenance
- A pre-existing condition disclosed in a home inspection
- Code violations
- Unusual wear and tear
- Improper installation
What if You Disagree With the Outcome?
A service provider can deny a claim. Call your real estate agent and complain if that happens or if you're unhappy with the service provided. Your agent can seek resolution for you if they have a good working relationship with the representative from the home warranty company. They might have some leverage.
Frequently Asked Questions (FAQs)
How long does a home warranty last?
Home warranties often expire after one year, but that's a detail that will be covered as you're shopping for one. If the expiration isn't clear, ask the warranty company to clarify.
How do I know whether I have a home warranty?
Sellers sometimes throw home warranties into closing deals to help entice buyers, so you might want to check with the seller to see whether they included a warranty with the sale. If you don't remember whether or not you paid for your own home warranty policy, check your credit card and bank statements to look for insurance company payments.
How do home warranty companies make money?
Home warranty companies make money when you buy a warranty policy but don't need to use it. Warranties are insurance policies that help protect you if something bad happens. If nothing bad happens, then you don't need to file a claim, but the warranty company gets to keep the money you paid. If too many customers were to start using their warranties, a warranty company could start to lose money.