Is Offering a Home Warranty to a Buyer Worth It?

Is Offering a Home Warranty to a Buyer Worth It?

When purchasing something, most of the time there is a warranty that is offered.  Depending on the item that is being purchased, some warranties will be part of the manufacturers guarantee and others will be warranties that can be purchased by the consumer.  In some cases, purchasing a warranty makes absolutely no sense and in other cases, it makes perfect sense!

A large purchase, such as a car or an expensive piece of jewelry, normally comes with a manufacturers warranty for a short amount of time.  A longer “extended” warranty is normally offered for purchase as well and in these situations, it normally makes sense.

How about in the case of a home, are warranties worth it?  Should a seller offer a home warranty to the buyer of their home?  In most cases, the answer is yes!  A home warranty can make a huge difference in the sale of a home.

Here are some reasons why offering a home warranty can be beneficial and also some things to look out for when selecting a home warranty.

Protects the Seller
Selling a home can be a stressful time for many sellers.  There are often things that need to get done to prepare a home to get it “market ready,” prepare a home for showings, and also prepare mentally for the change that is forthcoming.

This sounds stressful enough, right?  How about the homeowner whose furnace stops working in the middle of the winter while their home is listed!  The added stress of having to purchase a brand new furnace, which can range from $2,000-$4,000, can have a homeowner in complete panic mode.  Would a seller purchase and install a brand new furnace if they were selling their home?  Likely not!  If a seller purchases a home warranty, in most cases, they are covered for the heating systems of the property.  So, instead of having to shell out $2,000+ dollars, a seller may only have to pay a small “trade fee” or “deductible” of a $100.00, which is a huge difference!

Home warranties typically are effective from the listing date and cover the seller for the listing period, usually up to 365 days.  The 365 days the warranty covers a seller for is not something a seller wants to even think about!  A home that is listed for 365 days and has likely expired several times needs to be reevaluated by a great real estate professional to find out why it is not selling.

Every home warranty will provide the seller coverage on different items within a home.  The majority of home warranties cover the seller on the “major components” or “big ticket items” of a home.  This includes items such as the heating systems, electrical wiring, water heaters, and circuit breakers.  These big ticket items, like a furnace mentioned above, can cost a seller $1,000’s in replacement costs should they need repair or replacement.

Home Warranties help market a home and often help sell faster and for more money!

Marketing the Home
When it comes to marketing a home, there are many things that should be done by a real estate agent to ensure their clients are receiving the most amount of money for their home in the shortest amount of time.  The most important marketing “tool” an agent should use is recommending a realistic listing price for their seller’s home!  This is the most important tool for a real estate agent because the price of a home does the majority of the marketing.  If a home is overpriced, it will not sell, period!  A great real estate agent should determine a realistic listing price of a potential clients home by performing an in-depth comparative market analysis.

Now that the price is right, does a home warranty help sell a home?  Yes it can help!  Buyers have the ability to purchase a home warranty if it is not provided by the seller.  There are certainly many buyers out there who do purchase one, prior to closing.  A seller who provides a home warranty to the buyer often is giving themselves a competitive advantage.  If a buyer is considering two properties that are very similar in price, condition, and location, a seller who is providing a home warranty can often “tip the scale” in the favor of the homeowner who is providing it!  Statistically, homes for sale that offer a home warranty sell in a shorter amount of time and for more money because of it.

It is important that the real estate agent knows how to use the home warranty as a marketing tool and also have a strong understanding about the warranty and how it works!  There are many real estate agents who don’t even suggest or offer a home warranty to their sellers.  A real estate agent who doesn’t explain, suggest, and offer a home warranty is truly doing their seller a disservice as it can be a very useful marketing tool when selling a home!

Home Warranties Provide Buyers with Additional Peace of Mind

Buyer’s “Peace of Mind”
Buying a home can be a nerve racking time.  There are many costs associated with buying a home, many of which the buyer is unaware of until they start the process.  Some buyers use all or almost all of their money to purchase a home.  What happens when a buyer closes on their home and they need to install a new air conditioning unit and don’t have the money?  It’s likely either the new air conditioning unit doesn’t get installed or they have to charge it to a credit card, accumulating more debts.  If a seller provides a home warranty to potential buyers, it often gives additional “peace of mind.”

In the case a buyer needing a new air conditioning unit, furnace, or hot water heater and having a home warranty, they would only have to pay the minimal “trade fee” or “deductible.”  Most home warranties provide a buyer a full year of coverage from the closing date with the option to extend the warranty for additional years.  Home warranties cover the buyer on many of the same items that the seller is covered on during the listing period or the 365 day time period.  Many warranties provide buyers coverage on more items than the seller, such as roof leaks.  A home warranty can give a potential buyer the feeling they are receiving a “guarantee” on the major components of the home they are purchasing.

When & How Much You Pay
Knowing when and how much you pay is an extremely important thing to consider when purchasing or not purchasing a home warranty.  There are many companies out there that offer seller coverage complimentary.  The payment for warranties that offer complimentary seller coverage are due at the time of closing.  This means if a seller’s home does not sell, they do not have to pay the warranty.

Like most warranties, the cost varies depending on the amount of coverage.  With home warranties the cost can also vary depending on the number of units (single-family vs. multi-family), the type of residence (Condo/Town-home vs single-family), and also any additional coverage options.  Most home warranties offer additional coverage for items such as pools, spas, septic systems, and other miscellaneous items.  Generally, the cost of a warranty for a single family home will range between $400-$600 for a full years coverage from time of closing.  The cost of a warranty for a multi-family generally ranges between $800-$2,000 dependent on the number of units.

What Restrictions Apply
Before agreeing to anything in life, always read the fine print!  Whether it is an extended warranty for a car, a warranty for an appliance, or a home warranty, it is important to understand what restrictions may be involved and what limitations may exist.  Every home warranty is going to have restrictions to the type of items that are covered and usually have a maximum dollar amount that is covered.  For example, a heating system such as a coal or wood burner maybe excluded from coverage, so it is important to read the fine print and understand exactly what is covered and what is not!

Does the Warranty Company have a Good Reputation
Any warranty is only as good as the company that stands behind it!  It’s a good idea to research and learn about the company providing the home warranty.  Do they have a good track record?  What is their rating with the Better Business Bureau(BBB)?  Do they have online reviews?  Before purchasing a home warranty, research the company and feel free to ask for an individual who has used their service in the past.  Just like it’s recommended to ask a real estate agent questions before hiring them to sell a home, it’s important to ask the questions of the warranty company as well.

As indicated above, a home warranty is a good thing to offer when selling a home, for the most part.  Selecting a reputable warranty company, hiring the right real estate agent who can market the warranty, and paying the right price for the warranty will make the decision to provide a home warranty a smart one in the end!

Other Home Selling & Warranty Resources

• 2-10 Home Buyers Warranty Knowledge Center via 2-10.com
• Do I Need a Home Warranty? via HouseHunt.com
• 5 Common Reasons Why Your Home Isn’t Selling

There are many real estate agents, buyers, and sellers who have their own thoughts on home warranties, but we feel they are a great thing to offer!  The majority of our seller’s also believe they are a great thing to offer, once they fully understand the purpose and power that offering a home warranty can provide.  Are you unsure whether or not a home warranty would be a good thing to offer when selling your home?  Contact us, we’d love to evaluate whether or not a home warranty would be worth offering to potential buyers of your home!

About the authors:  The above article “Is Offering a Home Warranty to a Buyer Worth It?” was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock).  With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise.

We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.

Visit our website at www.HiscockHomes.com.