Who Pays for a Home Warranty Plan and How Does One Work?
Some homeowners swear by them and some hate them
The last thing a homebuyer wants after closing is a malfunction in her 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 going forward—it will cover the associated costs if something goes wrong. It's an especially good idea to obtain a home warranty if you're a first-time homebuyer with no experience in maintaining a home.
Who Pays for a Home Warranty?
Whether the seller pays for the home protection plan and home warranty coverage or the buyer pays for it 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 ranging anywhere from $350 to $600 a year as of 2019. But it can depend on the coverage. Home warranty companies sometimes run specials where 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 at a slightly higher fee when they expire.
How Do Home Warranties Work?
Some plans provide for specific types of coverage, but most operate in a similar manner 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 $75 to $125 as of 2019. You can negotiate this amount at the time you sign up for the plan.
Types of Coverage
You'll want to ask specifically what's covered under your plan because all plans differ. Ask your real estate agent if 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
- Water heater
- Duct work to code
- Garbage disposals
- Inside plumbing stoppages
- Ceiling fans
- Electrical systems
- Range and oven
- Telephone wiring
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's Not Covered?
Not every mishap or breakdown will be covered by your plan. Home warranties generally don't 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 prior to closing
- Exclusions noted in the policy
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 can happen for a few reasons:
- 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 she has a good working relationship with the representative from the home warranty company. She might have some leverage.
At the time of writing, Elizabeth Weintraub, CalBRE #00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.