You’ve accepted an offer on your home only to encounter a few serious problems right before closing. Most contracts require that homes remain in the same condition as when they’re viewed until the buyer takes possession, so it’s important to resolve these issues quickly. However, paying for these repairs can be expensive.
About 80 million homeowners call for appliance service each year, and anyone who’s ever dealt with a broken AC or refrigerator knows that these problems seem to appear at the most inconvenient times. A home warranty plan can help owners prepare for the unexpected while attracting more buyers and providing additional peace of mind. Here, you’ll learn some important facts about home warranty companies and the coverage they provide.
A home protection plan or home warranty won’t reimburse you for accidental damage that’s covered by an insurance policy. While homeowner’s insurance is a prerequisite for a mortgage, a home warranty is an optional purchase for both buyers and sellers.
Many homeowners get home warranties and insurance policies confused because they address similar issues but provide different types of coverage. Homeowner’s insurance policies cover fires, floods, earthquake damage, and other catastrophes. On the other hand, a home warranty covers the replacement and repair of HVAC units, electrical wiring, plumbing, appliances, and other crucial systems.
Most warranties have yearly terms and cost a few hundred dollars per year, but costlier plans exist. Furthermore, you’ll pay a service fee each time a contractor comes to visit. These fees are nominal when compared to the out-of-pocket cost of hiring a contractor or replacing an appliance yourself.
Like a homeowner’s insurance policy, a home warranty comes with limitations and exclusions. It’s important to read the fine print, as most policies don’t cover system maintenance. Some warranties offer additional coverage for extra items, and most plans fix things until they’re unrepairable. The average plan covers the following systems and appliances:
Coverage levels are a crucial consideration when choosing a warranty plan. Those living in older homes with upgraded appliances may want systems-only plans, while homeowners with outdated appliances may want a plan that covers them. If your appliances and systems could use an upgrade, choose a combination plan.
A home warranty plan can be invaluable during the escrow phase when a buyer makes a to-do list of repairs. If anything on the list is covered by the warranty, you can use the plan to defray the cost of those fixes.
Some homeowners value their warranty coverage so highly that they maintain it—along with an insurance policy—throughout the ownership term. For someone who already has a warranty, the coverage can be transferred to a new owner. However, it may be a wiser move to cancel that warranty and purchase one just for the sale.
When increasing a home’s curb appeal isn’t enough, a warranty may be just what’s needed to sway an undecided buyer. By including the cost of a year-long warranty in a home’s listing price, you’ll give buyers a reason to consider your offer. The money spent on a warranty plan is insignificant compared to the costs associated with a home that sits on the market for months.
By offering warranty coverage to a prospective buyer, you give them the reassurance that, should something go wrong, most of the expense will be covered. In some cases, that’s all an owner needs to close the deal. Warranties are a strong selling point because they give buyers the confidence that they won’t go broke making repairs.
A warranty can be quite useful when a buyer has a laundry list of repair requests. We’ve already discussed the importance of having a warranty in place during a sale, but in some instances, it’s better to save the coverage for the negotiation phase. If you’re sure enough about the condition of the home that you believe it’s possible to forego a warranty during the listing period, save the offer for later. Then, when a buyer makes a list of repairs, you’ll be ready with a counteroffer of a warranty.
This is a winning strategy for sellers and buyers. A seller will win because they won’t have to pay out of pocket for repairs, and a buyer will win because they’ll be able to oversee the work being done on their new home. Additionally, they’ll get the benefit of the warranty if other issues arise.
If you play your cards right, a home warranty may be enough to save a failing home sale. Not every home seller can afford to make a lot of repairs, and in these cases, a home warranty plan can be a deal saver. The right coverage can take a sale from “no thanks” straight to the closing table because it bridges the gap between a cash-strapped seller and an anxious buyer. The cost of a warranty can come out of the sale’s proceeds, which is much less expensive than paying for major repairs out of your own pocket.
While some may think it’s not a sensible decision to pay for a warranty on a home they plan to sell, it’s important to remember that, for most people, a home purchase is the biggest investment of a lifetime. Home warranty plans protect the value of this major investment if anything goes wrong at the end of a sale. With a good home warranty plan, both buyers and sellers will get the peace of mind needed to move forward with a big purchase.
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