Understanding Home Warranty

The Home Warranty’s Role in Your Sale

As a Seller, a home warranty is basically an insurance policy covering the mechanical, electrical and plumbing systems of a house against unforeseeable events after you close escrow. A policy can ward off potential disputes after the sale for repair and/or replacement of covered items.

Whether the Seller pays for the home protection plan and home warranty coverage or whether the Buyer pays for it, will depend on your local customs. In many regions, the Seller often pays for the coverage because it’s a Seller benefit in that the Buyer won’t be calling after closing if something breaks.

Home warranty plans range, on average, from $250 to $450 depending on coverage, and are prepaid for a year in advance. When used, the homeowner often pays a co-pay direct to a service provider when a service covered under the plan is rendered. Most home warranty payments are not due until the close of escrow and it becomes part of the Seller’s closing costs. The policy is mailed to the new policy holder and can be renewed on an annual basis going forward.

Coverage varies from state-to-state and from policy-to-policy. Basic home warranty plans cover routine heating, plumbing and electrical systems. Optimal coverage for air conditioning, pools and spas, and appliances, is often charged on a per item basis. More comprehensive plans cover such items as irrigation systems, roofs and garage door openers.

A home warranty plan can also be ordered at the time of listing to protect the seller during the listing period, usually not exceeding six months, then assumed by the Buyer at the time of the sale.

Once the policy is in effect, when service is needed, the policy holder often has the option to either call the warranty company who will facilitate a call directly from an outside service company to arrange for service or they can call the warranty company’s in-house service department directly to arrange service. If an appliance is malfunctioning and cannot be repaired, depending on contract coverage, the home warranty company will pay to replace and install the appliance, for example.

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