Your home is the most significant investment you’ll ever make. That’s why if you put your house on the market, you should get every penny back. Sometimes, closing a deal requires making concessions so that you can guarantee a buyer’s peace of mind.
If you’re looking to sell your home, you may be wondering if you should include a warranty plan in a home offer. The answer will depend on your home’s condition, your timeline for moving, and several other factors.
Here’s everything you need to know about warranty plans so that you can make an educated decision.
What is a Warranty Plan?
A warranty plan is a legal contract between a homeowner and a home warranty provider. The document guarantees the homeowner discounted repairs in case of any electrical or mechanical failures. It typically covers appliances in the home.
The warranty is not the same as homeowner’s insurance, which protects against perils such as fire, flooding, wind, and hail. The insurance covers the house’s structure and some belongings but it doesn’t cover your appliances.
How Does a Warranty Plan Work?
The home warranty company arranges with local service providers. If something in the home breaks down, the homeowner can call the company, and they’ll send the provider to the house to inspect the issue. If the provider deems the problem worthy of repair, the home warranty company will cover most of the costs.
The specific repairs will depend on what the warranty covers. For instance, if the service provider says the kitchen sink is beyond repair, they may replace it with a new one. Take note that the homeowner will pay a small fee ranging–between $75 and $100–for each visit.
How Much Does a Warranty Plan Cost?
If you’re looking to purchase a home warranty for appliances, you don’t have to worry about breaking the bank. Most policies are inexpensive, regardless of your home’s size. According to ImproveNet, the average warranty costs around $350 to $600.
The final warranty price depends on how much coverage you want. The more appliances you protect, the higher the premium. Some home warranty companies run seasonal specials so that you can secure discounted rates or additional coverage for the standard price.
Homeowners pay their home warranty one year in advance. The contract protects all the specified appliances during that time. You can choose to renew the policy or let it expire after 12 months.
What Does a Warranty Plan Include?
Warranty plans range by state and policy. Make sure to ask your home warranty company for a specific list of the covered items before signing to the contract.
Some of the most common appliances that home warranties cover include:
- Electrical systems
- Garbage disposals
- Heating and air conditioning
- Water heaters
- Indoor plumbing
- Kitchen appliances
- Ranges, stoves, and ovens
- Washers and dryers
What Does a Warranty Plan Exclude?
Warranty plans don’t cover every repair or mishap at home. The contract should lay out the exceptions so you know when to call for repairs. Some typical exclusions include:
- Items damaged before closing
- Junk removal
- Outdoor utilities, such as siding and sprinklers
- Permit fees
- Spas, hot tubs, and pools
- Washers and dryers
Denying the Warranty Plan
The warranty plan outlines what the contract will and will not cover. For instance, if your hot tub malfunctions, you’ll have to pay out of your pocket to repair it, unless you have insurance. A homeowner may also inadvertently void the agreement with the warranty plan provider.
Let’s say your dishwasher has a grimy interior, and you want to clean it. You decide the fastest way to get rid of the mess is a corrosive chemical agent. You put some of it in the dishwasher, run a cycle, and then the inside looks like new. However, the problem is that the machine now leaks.
Under normal conditions, you could contact the warranty plan company for repairs. However, because you used a prohibited chemical agent to clean your dishwasher, you violated the warranty plan. Your provider doesn’t have any obligation to cover the repairs, and you’re stuck with the bill.
Companies may also deny your warranty for improper appliance installation, code violations, and unusual wear and tear. You can even receive a rejection notice if inspectors find a pre-existing issue. The provider won’t cover the pre-existing issue because you should’ve been aware of it before closing the sale.
Why Sellers Should Include a Home Warranty
Home warranties provide buyers with peace of mind. The last thing someone wants is to purchase a new house and find out later that several appliances don’t work. If you include one in the home offer, it makes the home more attractive to prospective buyers.
A home warranty can be particularly appealing if you’re dealing with first-time homebuyers. Chances are, these buyers have no experience maintaining a property. The warranty ensures that they receive the proper maintenance they need to keep the house in excellent shape.
If you’re wondering if you should include a warranty plan in a home offer, consider the long-term benefits. Spending a few hundred dollars can make the difference between someone buying and selling your home. If that means closing a deal on a $300,000 property, the $300 you spend on the home warranty will be a trivial price.
Home warranty plans also make it easier to get repairs. Homeowners don’t have to do extensive research to find qualified service providers in the area. All they have to do is contact the warranty plan company and schedule a date for the inspection.
The convenient set up can work against new homeowners, too. Perhaps they want to find an independent contractor or expert. They don’t have that luxury because the warranty plan company determines the service providers in advance.
Why Sellers Should Avoid a Home Warranty
Even the best home warranties won’t cover repairs if the new homeowners fail to maintain the appliances. The issue falls in a legal grey area and is a common contention between homeowners and home warranty providers. Homeowners argue that the plan should cover the repairs, while the company says the opposite.
Unscrupulous companies may use clauses in the contract to deny valid claims. They may also disagree with the homebuilder over the definition of proper maintenance. The contentious arrangement can make it challenging for homeowners to get the compensation they deserve.
A home warranty may only serve as a band-aid for long-term repairs. If new homeowners inherit a 15-year heating and air conditioning unit, there’s no amount of maintenance that can prevent it from falling in a few years. The potential complications are compounded if you didn’t maintain the unit before the sale.
Homeowners may go through several years without any significant repairs. The homeowner gets nothing in return except for peace of mind from the warranty plan. If they had set that $350 to $600 aside for future repairs, perhaps the investment would’ve been worthwhile.
Alternatives to Home Warranties
A home warranty makes it easier for you to sell your home. However, it’s not the only way you can sweeten the deal with prospective buyers.
Here are a couple of alternatives to the home warranty:
1. Leave Items in the Home
Most homeowners pack up everything in their house and leave. If the prospective homebuyers are playing hardball, you may make concessions to reach a deal. That can include leaving certain appliances in the home, such as the toaster oven or light fixtures.
The arrangement is a win-win scenario. Homebuyers don’t have to furnish their new home when they move into the property. Meanwhile, you lighten your load and moving expenses while avoiding the upfront costs of a home warranty.
2. Sell to Qualified Buyers
First-time homebuyers may not understand what it takes to finalize a home offer. They may not bring a letter of pre-approval or proof of funds for a cash purchase. If you find the prospective buyers too inexperienced, try working with seasoned shoppers.
3. Cover Closing Costs
Instead of adding a home warranty to the sale, offer to cover some closing costs. Closing costs are typically two to five percent of a home’s value, so homeowners will perk up at an opportunity to save money.
Some of the potential costs you can cover include title insurance, property taxes, loan origination fees, and inspection fees.
The Bottom Line
Give yourself the leverage you need to sell your house with a home warranty. The legal document assures buyers the home is in working condition and that you’ll handle any significant appliances repairs in the next year. Many people use the plan as an act of good faith, including 90% of sellers in California.
While home warranties aren’t mandatory, they can make a significant difference in your home’s overall appeal. The odds are you’re more likely to sell your house with one than without one. This single document may be all you need to close a deal on a home offer.
Author: Chris Muller
Chris Muller is a professional personal finance writer who has written for some of the largest financial publications in the world. Chris brings a BBA and MBA in Finance, along with a decade of experience in the field, to help break down complex financial topics into easily digestible pieces through his written content, to assist others in better managing their finances. Chris is currently in pursuit of FI/RE, is an aspiring minimalist, loves craft beer, and is dad two to kids.