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Buyers' incentives for sellers to buy a home guarantee

buyers, mortgage, sellers
Buyers' incentives for sellers to buy a home guarantee

Buyers' incentives for sellers to buy a home guarantee

If you’re purchasing a home, you might want a home warranty to help cover the cost of service, repair, and replacement of major appliances and systems. But who pays for the home warranty – the buyer or the seller?
The answer is that anyone can purchase a home warranty: a buyer, seller, homeowner, or renter. And, you don’t have to be in the midst of a real estate transaction to get a home warranty. At any time, no matter the age of your home or its condition, you can purchase a policy directly from a home warranty company. Two-thirds of home warranties sold in the U.S. are bought in conjunction with a home purchase, according to Art Chartrand, executive director, and counsel for the National Home Service Contract Association (NHSCA).
However, a seller's home warranty and a buyer's home warranty are somewhat different and serve different purposes. A seller's home warranty is a specific, limited warranty that the seller buys for financial protection in case something goes wrong with a major system or appliance before closing. Unlike other home warranties, a seller's home warranty doesn't cover less expensive appliances like microwaves and ice machines. The seller can also purchase a home warranty for the buyer as an incentive to close the sale if the housing market favors buyers.
By contrast, if it's a sellers' market, the buyer typically pays for a home warranty. These warranties can cover both major and minor appliances and systems, depending on what coverages the buyer selects.

Sellers' Home Warranty

A seller may purchase a specific sellers home warranty plan for financial protection in case major appliances or home systems such as the water heater or air conditioning break down while the home is on the market or under contract. In addition, home warranty companies sometimes offer free sellers’ warranties if the seller agrees to purchase a home warranty for the buyer. "Warranties are becoming a tool for sellers, and some companies offer them at zero cost,” says Jay Rinehart, National Association of Realtors regional vice president and the broker/owner of Rinehart Realty Corporation in Rock Hill, South Carolina.
Real estate agents can provide a sellers' home warranty to a client who is listing his or her home, and these plans generally cost $300 to $550, depending on the coverage. Although this may seem like a lot of money for something that might not be needed, when you consider what could go wrong during the real estate listing period up until closing, the one-time fee might be worth it. This is especially true if the home contains appliances and systems that are no longer under manufacturers’ warranties.

Buyers’ Home Warranty

Home buyers can purchase a home warranty plan from their real estate agents or directly from a home warranty company. However, many buyers will ask the seller to pay for the first year of a home warranty. This can benefit both parties; sellers might have a better chance of closing a deal if buyers are less concerned about the condition of major appliances and systems, and buyers can purchase the home with peace of mind.
However, whether a seller is motivated to pay for a buyer’s home warranty really depends on the local real estate market. “We are in one of the fastest-growing markets in South Carolina, so for us right now, adding a home warranty to the deal does not help sell a home,” Rinehart says. “If you go back eight years, adding a home warranty was a nice carrot when we were marketing properties. But at this point, just getting the deal is enough for buyers because of the robust marketplace.”

Why Would a Buyer Want a Home Warranty?

A home warranty provides extra protection for buyers, which is why many choose to purchase a plan when they close on a home or ask the seller to purchase a one-year warranty on their behalf. After moving in, if an appliance needs repair or breaks down completely, a home warranty can help pay for the unexpected expense. Even after a thorough home inspection, there’s always a chance that something could go wrong. And after closing, the last thing most homeowners want to do is spend more money. A home warranty program can prevent significant out-of-pocket expenses related to service, repair, or replacement if something expensive breaks.

Buyers might want to purchase a home warranty because they:

  • want to feel confident that after having purchased a home, they have added protection if covered appliances or systems fail or require service.
  • aren't prepared to spend thousands more should one of the home’s systems or appliances break down after the manufacturer's warranty expires.
  • can access a stable of qualified vendors with a single phone call to the home warranty company, rather than trying to find reliable service professionals themselves.

  • Why Would a Seller Want a Home Warranty?

Sellers' warranties are becoming more popular, says Annie Hanna Engel, president, and chief operating officer of Howard Hanna Insurance Services. “We look at it as a listing tool from the get-go for sellers,” she says. “The seller agrees to maintain the property ‘as is’ when they go into an agreement with a buyer, so this gives them peace of mind in case there's an equipment breakdown for a covered item during that time.”

Sellers might want to purchase a home warranty because they:

  • are expected to maintain the property “as is” until the deal closes.
  • can rest assured that if a covered appliance or system breaks down while the home is listed or under contract, the home warranty company will send out a professional to address the issue.
  • want to incentivize buyers to close the sale.

How U.S. News Evaluated Home Warranty Companies

We explain what matters most to consumers, experts, and professional reviewers when it comes to home warranties. Then we provide an unbiased evaluation of home warranties available at the time of review. Our goal is to empower consumers with the information and tools they need to make informed decisions. More information about our 360 Reviews methodology for evaluating home warranty companies is here.

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Kenitchou kamel eddine is a real estate blogger and editor. Email your real estate news ideas at [email protected] facebook twitter pinterest tumblr