The Cost Of A Home Warranty, Who Pays—And Why?

A home warranty is different than homeowners insurance. Homeowners insurance protects the structure of your house and your possessions against catastrophic loss from disaster or theft. Most lenders require you to carry homeowners insurance for the length of your mortgage. A home warranty covers a property’s built-in systems and major appliances from damage or failure due to normal wear and tear. Your lender won’t require you to have a home warranty, but it can help manage the cost of everyday home maintenance for some of a home’s most expensive systems.

A home warranty might cover plumbing, electrical, heating and cooling systems, kitchen appliances such as washers and dryers, and appliances ranging from the stove to the garbage disposal.

Home warranty contracts, which are entered into by a homeowner and their chosen home warranty provider, typically run for 12 months at a time. Homeowners can switch providers at the end of the contract if they think they can find a better deal elsewhere. And there is no shortage of companies to choose from.

Our research shows that home warranty prices can range between $300 and $600 a year (or $25 and $50 a month) depending on coverage. Costs also vary by state as we outline in the table below.

It’s important to note these costs do not include any technician visits in the event of an appliance or system breakdown. These visits usually cost between $60 and $100, depending on the policy.

Home warranties can be a useful bargaining tool in negotiations, but they are an optional part of a real estate transaction, not a legal obligation.

But if there is a home warranty involved who pays for it: the buyer or seller? The short answer is that it can be either depending on the situation.

Here are three reasons why a seller might want to pay for a home warranty:

1. To stand out from the crowd: If you are trying to sell your house in a buyer’s market—when the market is crowded with other sellers—a home warranty can add to the appeal of your home. Most policies are transferable to the new owner, and an active policy can reassure prospective buyers that your home is not concealing any nasty surprises—and that if any problems arise, the new owners will be covered for it.
2. As a bargaining chip: If you have a prepaid home warranty with several months left on the contract, it can be an extra negotiating tool between you and the buyer. In some cases, it could also help smooth the home inspection process or—if the warranty is comprehensive enough—even take the place of it.
3. For protection during the selling process: Selling a home is already an expensive business and the last thing you need is to be stung with unexpected costs during this process. A home warranty will eliminate the risk of paying for repairs while your home is on the market. During this period, a home warranty is known as a seller’s home warranty.

Here are three reasons why a seller might pay for a home warranty:

1. Streamline a tricky buying process: If you are trying to buy a home in a seller’s market—when the market is crowded with lots of sellers who can pick and choose and take their time—then offering to buy a home warranty on the property during the transition period could help nudge you to the front of the line.
2. Cover older or unusual properties: If there is no home warranty in place already, and the seller is not going to buy one, it can make sense for the buyer to purchase it instead—especially when the property in question is old with major structural systems that are past their prime with the potential for costly repairs. The same applies if the home is of an unusual construction.
3. To secure the right type of warranty: As with any product, the coverage of a home warranty policy depends how much you pay for it. If you leave the seller to pay, they may opt for the cheapest available. Buying a home warranty yourself as a buyer will ensure that it’s robust and comprehensive enough for your needs.

A home warranty is essentially the same product regardless of whether you are a buyer or seller, so there should be little to no discernible difference in cost whether the buyer or the seller pays for it.

That said, cheaper home warranties don’t tend to offer seller warranty services, as outlined above. Take particular note of this if you are a seller who has decided to buy a home warranty.