The Home Warranty Catch Your Buyers Should Know

November 18, 2019

Some sellers are hoping to hook a buyer by offering a one-year home warranty to cover repair costs for items such as appliances, electricity, or plumbing. The tactic, which is gaining popularity, is meant to give buyers peace of mind that they won't have to shell out cash for pricey improvements after moving into the home. Seventeen percent of sellers have offered a home warranty as an incentive to potential buyers, according to research from the National Association of REALTORS®. The longer a home lingers on the market, the more likely a seller is to offer a warranty, the study finds.

The seller may pay for a year of coverage, which usually ranges from $600 for a condo to $700 for a house, The Wall Street Journal reports. Some states even build home warranties into the contract. “People today are staying in their homes a longer period of time—an average of nine to 10 years,” Jessica Lautz, NAR’s vice president of demographics and behavioral insights, told the Journal. “If you’ve lived in your home for that amount of time, there may be some systems or appliances that are in need of repair.”

In markets with low inventory, however, a home warranty may actually be a warning sign to potential buyers, Jeffrey P. Cohen, a professor of finance and real estate at the University of Connecticut School of Business, told the Journal. “If you’re in a market like New York City, I would see it as a red flag that something may come up.” Cohen said real estate professionals know their specific markets and should be able to advise their customers on whether a home warranty is helpful or necessary.

If your buyers opt for a home warranty, Cohen advises not forgoing a home inspection. Inspectors assesses items that aren’t covered by a home warranty, such as the nonmechanical and structural components. That said, problems that turn up in a home inspection will be considered “pre-existing” and will not be covered by the home warranty after the deal closes, the Journal reports. “If something is broken, it has to be a compete surprise,” explains Lindsay Katz, a real estate professional with Redfin in Los Angeles. Katz says that if a furnace isn’t working properly during a home inspection, the buyer should either ask for the homeowner to repair it or an allowance separate from the home warranty to cover the cost.

Home Warranties Offer Buyers Protection. Just Don’t Forget the Inspection,” The Wall Street Journal (Nov. 14, 2019) [Log-in required.]