Who Pays For a Home Warranty: Buyer or Seller?
Who’s on the hook for the home warranty bill?
In most cases, sellers pay for a home warranty to entice buyers.
Buyers could pay for a home warranty to reduce repair costs after closing.
Home warranties cost an average of around $1,049 per year.
A home warranty isn’t necessary in a real estate transaction, but it can protect sellers and buyers from unexpected repair and replacement costs for mechanicals and appliances. Since both parties can benefit, you might wonder who pays for a home warranty: the buyer or the seller? In this guide, we’ll explain who typically pays and why and when either side might foot the bill.
Does the Buyer or Seller Pay for a Home Warranty?
It’s most common for a seller to pay for a home warranty as part of a real estate transaction, but either the buyer or the seller could opt to pay. If the seller plans on using the home warranty to entice buyers to purchase their home, which is often the case in a buyer’s market where supply outpaces demand, then the seller will usually pay. However, a buyer may pay to insulate themselves from high repair costs after closing, which is more common in markets where demand outpaces the supply of available homes.
Why a Seller Would Pay for a Home Warranty
There are two scenarios in which it’s more common to see a seller’s home warranty as part of a real estate sale.
It’s a Buyer’s Market
The most common reason a seller would pay for a home warranty is to make their property more appealing to buyers. This is most common in a buyer’s market, where the available housing inventory is high, and buyers have their pick of multiple homes.
A home warranty may cost the seller $1,000 for a year of coverage post-closing, but it’s a good way to entice buyers to purchase their home over a competing one. A home warranty gives the buyer peace of mind that they won’t have to pay out of pocket for repairs or appliance replacements shortly after closing, which makes the home more enticing.
The Seller Wants to Avoid Unexpected Repair Costs Pre-Closing
Sellers can also purchase a home warranty to avoid paying out of pocket for unexpected repairs leading up to closing. Sellers are usually responsible for repairing any damages that pop up after they accept an offer, and a home warranty can insulate them from high repair costs to make the sale go more smoothly.
Why a Buyer Would Pay for a Home Warranty
Similarly, a buyer might pay for a home warranty for two main reasons.
It’s a Seller’s Market
In a seller’s market, there’s usually a lot of competition for each home, so buyers might have to make more concessions than usual. That could mean buying a house that’s older or in worse shape or waiving a property inspection—a tactic to make your offer more competitive—that could uncover necessary repairs.
Since sellers in a seller’s market don’t usually need to entice buyers to purchase their homes, buyers will more often pay for the warranty to protect themselves after closing.
The Buyer Wants Specific Coverage
When a seller offers a home warranty, they’ll often purchase more affordable coverage that might not provide the same peace of mind as a comprehensive home warranty would. Buyers might offer to pay for the home warranty if they want coverage for specific items, a specific local home warranty company with a high payout rate and good customer service, or specific home warranty coverage, like a warranty that includes HVAC mechanicals, certain appliances, and more.
How Much Does a Home Warranty Cost?
A home warranty costs an average of $1,049 per year, but prices can range from around $220 to $1,900 annually, depending on the breadth of coverage, the service fee, and the coverage limits included in the contract.
Frequently Asked Questions
Home warranties can protect the buyer, the seller, or both, depending on when the coverage begins. Sellers who buy home warranties while their homes are on the market protect themselves from out-of-pocket costs leading up to closing and to their buyers after closing. Buyers who purchase coverage that kicks in after closing will only be protecting themselves.
Most home warranties transfer with ownership, but it depends on the home warranty provider. Some companies automatically transfer the coverage from the seller to the buyer; some require additional paperwork to complete the transfer, and others may not allow a transfer at all. Check the policy or sample contract or ask your home warranty provider to confirm before selling.
