What buyers, sellers should know about the home warranty

Home warranties can be helpful, especially in the first year of home ownership. But be sure to read the warranty so you don't get blindsided by fees or lack of coverage.

In this article, I answer common questions about home warranties, including what you should look for in a home warranty and why a home warranty may be beneficial to you.

What is a home warranty?

A home warranty is a plan that covers repair and/or replacement of specific areas/appliances/systems in the house. It's usually purchased at settlement of the purchase of the home and has an option to be renewed annually.

Who buys the home warranty at settlement – purchaser or seller?

It depends. Sometimes sellers sign up for home warranties at the time of listing of the property and offer that to their purchasers as an incentive to buy the house. Often times, home warranties are negotiated in the purchase contract as one of the terms of the contract. Other times, purchasers buy them – especially when the house they are buying is older and has older appliances.

When can one purchase a home warranty?

Depending on the home warranty company, the warranty is purchased at the time of settlement of the purchase of the home. Sellers can apply for a home warranty at the time of listing, so if anything happens to the systems in the home covered by the warranty between the listing date and settlement, everything can be taken care of prior to settlement. This is especially helpful, as it alleviates any last-minute negotiations between buyers and sellers due to a system problem.

How does a home warranty work?

If a covered system or appliance breaks in the home, you must contact the home warranty for repair. You cannot call your own repair person, unless instructed to do so by the home warranty company. If that is the case, then your repair person must meet the home warranty company’s requirements. You also must pay the trade fee at the time of service.

If the repair person cannot repair the appliance/system, then that covered item is usually replaced with a similar system or appliance.

What should I look for in a home warranty?

You need to read the home warranty terms and conditions as well as coverage of the plan. Each plan is different. There is usually a trade fee associated with every call. This fee is usually a set fee disclosed in the plan and is paid at the time of service. 

For most plans, you will be required to pay the fee every time a repair person comes to your home, unless it is a continuation of a prior repair (i.e., the repair person did not have the part needed until later on and then came back to install the part). 

Some warranties have low trade fees and cover fewer items; others have higher trade fees and more coverage. Also be aware that if the issue occurs after hours, you may be responsible for paying any of the extra fees to get a repair person to your home during those hours.

Other things to look for are limits on the monetary amount for replacing/repairing a system/appliance, whether older items will be replaced if the parts are unavailable due to age of the system or appliance and additional fees you can pay to cover other items with the warranty.

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