Enticing Buyers With a Home Warranty

When you buy a new home from a contractor or housing developer, it comes with a warranty guaranteeing that the home’s mechanical systems, including plumbing, heating, electrical, and air conditioning, will work for a certain period of time. The major appliances, if included in the new home, are also covered by the warranty. If anything malfunctions while under warranty the appliance or mechanical system is repaired or replaced for a small deductible of usually no more than $75 paid by the homeowner. Warranties on new homes typically cover one to five years, and can be renewed.

Competing With the New

Sounds like a pretty good deal, right? Homebuyers naturally love warranties that are included in the price of the home. Often homebuyers have plunked down a lot of their savings and have borrowed heavily to make their home purchase. The last thing they want to think about is the possibility of having to make costly repairs in the first year or two. A warranty means no big repair bills for at least a year.

But say the home you want to sell isn’t new. It’s 30 years old and you’ve been living in it for the last 10 years. How do you compete with the new homes in your market and their attractive warranties?

Easy. Buy a seller’s warranty, which is essentially a home warranty that you buy to make your older home more attractive to would-be buyers. Basically it’s the same deal as any home warranty: You pay about $300 to $400 for a year’s worth of coverage, and if anything malfunctions during that time, the new homeowner only pays a deductible of $50 to $75. There are many places to buy home warranties, from insurance companies to banks. Some companies that offer home warranties even have programs for home sellers whereby you don’t have to pay the warranty premium until you actually sell the home. Also, most companies will offer a warranty even on homes that are quite old.

Do not confuse home warranties with homeowner’s insurance. Homeowner’s insurance almost never covers a home’s mechanical systems or appliances. It generally covers damage due to fire, theft or vandalism, windstorms, or other natural disasters, accidents, or crime.

A seller’s warranty can also be a nice bit of insurance for you as home seller. The last thing you want is to be settled in your new home and get a call from the guy who bought your previous home complaining about the heating system, which, now that it’s October, is not working. Even worse, you may get a call from his lawyer.

More than half the states in the nation now have strict disclosure laws obligating sellers to inform would-be buyers about a home’s existing problems, if any. If you live in a state with a disclosure rule you are legally required to tell the truth about such past and existing problems as whether your home was ever flooded, when you last replaced the roof, and if you know of any problems with your mechanical systems. (See Tell All: Disclosure for the Seller.) Still, despite these required disclosures, in the worst-case scenario you still could be vulnerable to a lawsuit if the buyer of your home suddenly finds himself with a completely non-functioning plumbing or heating system. A $400 warranty may be worth it for your peace of mind.

Warranties and Market Trends

However, in a housing market that is relatively hot — meaning lots of buyers chasing a limited number of existing homes — few sellers offer warranties. As long as you follow your state’s disclosure requirements, if any, and do not lie about existing problems, most buyers assume they are taking on the responsibility of maintaining the home and fixing future malfunctions. If they love your home and its location, they’ll buy the house with or without a warranty.

In a very hot market, would-be buyers may be contemplating buying your home primarily for its location and then doing a major remodel, including adding entirely new heating or plumbing systems. A few years ago, for instance, one of the most popular high-end remodels was to replace older plumbing systems, often made of lead, using copper pipes. Buyers in such a market know they'd better jump to get the house and figure out how to remodel later. They would have no particular interest in a home warranty. And you would waste money buying one.

Most sellers of existing homes do not offer warranties. And if you are selling in a strong market, there’s probably no big reason to offer one as a competitive advantage. But, if you think your home needs a bit of a boost to make it stand out from the competition, you might consider buying a warranty.

Seller's Tip: As always, you need to research your market. Go to open houses for homes like yours and see if sellers offer warranties. Ask friends and colleagues who’ve recently bought if the sellers threw a warranty into the deal. If you really need a competitive advantage to sell your house, you can think of the $400 premium for a warranty as a part of your marketing plan. If your house is highly desirable anyway, skip the warranty and save your money.