3 Sound Reasons Why You Should Offer a Home Warranty
Estimated reading time: 5 minutes
According to the New York Times, a homeowner can expect to pay approximately 4.6% of the purchase price of their home in yearly major repairs. Even though the average cost for a home warranty is significantly less, only about 25% of the sold homes in 2020 included one. If you are selling a home, regardless of the type of real estate market, you may want to obtain a home warranty for the buyer of your home. Read on to understand how this may be advantageous for both sides.
A home warranty is a yearly service contract designed to cover the repair and replacement of vital features and systems, including HVAC, plumbing, electrical, and major appliances, that keep a home operating comfortably and effectively. Home warranty companies offer a financial safeguard against these household essentials’ unpredictable breakdown or degradation during the warranty period. There are two types of home warranties: a Buyer Home Warranty, which covers the new owner of the property for up to 13 months, and the Seller Home Warranty, which covers the property during the timeframe it’s being listed.
BENEFITS OF OFFERING A BUYER HOME WARRANTY
Competitive Advantage
Offering a buyer home warranty can differentiate a home from others on the market, making it more appealing to potential buyers.
- Potential for Faster Sale and Higher Offers: Homes with warranties may sell faster and closer to the asking price because buyers feel more secure in purchasing. According to this AHS Study, homes offering a home warranty sold 11 days faster on average and for $2,314 more than those without one.
- Attractive to Buyers With Less Cash Reserves: For buyers who use most of their savings for the down payment and other moving expenses, not having to worry about major repair expenses in the first year can be very attractive.
- Peace of Mind: It gives potential buyers peace of mind knowing that many of the major systems and appliances in the home are covered. This can be especially appealing to first-time homebuyers who might be more risk-averse.
- Builds Trust: Offering a warranty can build trust, showing potential buyers that the seller is confident in the home’s condition and is willing to back it up with a warranty. In some cases, it could even prompt a would-be-buyer to forego an inspection.
Negotiation Tool
If a buyer is on the fence or raises concerns about potential post-sale repairs or replacements, the seller can use the inclusion of the home warranty in the contract as a negotiation tool to entice the buyer to close the deal.
Reduce Post-Sale Disputes
If something in the house breaks shortly after the sale, the buyer might blame the seller or think they were misled about the home’s condition. Having a home warranty in place can mitigate such tensions since the buyer knows upfront about the home warranty and can just file a claim with the warranty provider.
BENEFITS OF A SELLER HOME WARRANTY
If you’re the seller, you should consider getting a home warranty for yourself for added protection during the listing period – even if you don’t purchase one for a buyer. If a covered system or appliance breaks down while the home is on the market, you could use the warranty to fix it.
This ensures you don’t have to pay out of pocket for repairs or replacements just as you’re trying to sell your home and the warranty is almost always less expensive than the actual repair cost. For example, the average cost of repairing or replacing an HVAC system in the U.S. is approximately $8,000. If the furnace breaks down before you close on the home, you might be paying for a new one you will not use for very long – unless you have a Seller’s Home Warranty.
And the best part? There is generally no extra cost for a Seller’s Home Warranty during the listing period to have this coverage when you agree to pay the annual cost for the buyer at closing from your proceeds!*
COSTS OF A HOME WARRANTY
The cost of a home warranty is usually less compared to the potential benefits. A higher selling price or faster sale might even offset the cost of the warranty. Sellers can often choose from a range of coverage options, tailoring the home warranty to the unique features of their home and the concerns of their potential market. According to Consumer Affairs, the average cost of home warranties is:
- Total Plan Cost: $450 – $600 per year
- Average Monthly Payment: $40 – %60
- Service Call Fees: $75 – $150 per visit
As you can see, there are some financial and marketing advantages in offering a home warranty to buyers or getting a seller’s warranty so you don’t have to worry about replacing a system during the listing period. Regardless of your situation, please get in touch with me when you would like my recommendation on whether to purchase a home warranty or which companies to consider.
*Not all home warranty companies offer a complimentary Seller’s Home Warranty when a Buyer’s Home Warranty is purchased. Ask me to recommend the best company for your situation.