Home Warranties: Do they Really Help Sell Homes?

Man with toolbet and house in background

A home warranty can be exactly what either the buyer or seller needs to get a deal done, but sometimes the absence of one could be overlooked. How do you know when a home warranty is in the cards?

If it’s a new home, it’s essential. If it’s an older home with issues, it might help convince a buyer to take a chance. According to a survey conducted by American Home Shield:

  • The majority of homes sold with a home warranty sold faster and at higher rates when compared to the national average.
  • Houses sold with a warranty increased their sale prices by 0.91%, reduced their number of days on the market by 16.14%, and increased their percentage of sales price to list price to 96.7%, as opposed to 96.1%.

If the market is hot, a buyer may be ready to accept a home without a warranty, because they don’t want to lose it to another interested buyer. But if all the numbers point to higher, better sales with a home warranty, how do you know when to convince your clients to go for it?

New Homes
New homes that have just been built come with a warranty from the housing developer or contractor that is designed to cover all of the home’s major mechanical systems. These can include plumbing, electrical, air conditioning, and heating, for about one to five years. After that, it is up to the homeowner to carry their own warranties on these systems or pay to continue the policy. Some home warranties that come with the home include major appliances as well. Should anything covered in the warranty malfunction during the specified coverage period, the buyer will only need to pay the deductible, which is usually less than $100.

It is important to note and to explain to the buyer that a home warranty is not the same thing as homeowners insurance. Homeowners insurance covers damage to the home such as fire, wind damage, accidents or crime. Home warranties cover the major electrical systems and/or appliances in the home.

While new homes are sometimes easier to sell than old, telling a potential buyer about the home warranty (or seller’s warranty) can entice them and close the sale, especially if it is a good warranty. If the sale is teetering, see if negotiating a better home warranty with the developer or contractor can be done. A five-year warranty that covers all mechanical systems in the home as well as the appliances with a low deductible is going to be more encouraging than a short-term warranty that covers very little and carries a high deductible. And whenever possible, regardless of what type of warranty it is, make sure it is included in the price of the home.

Older Homes
Curb appeal and granite counter tops can go a long way to sell a home. However, for an older home, a home warranty is the missing piece that can make it more attractive to a buyer. But not all sellers are on board when it comes to the home warranty. If the market is hot, they might feel it is not necessary to sell the home. But, if something goes wrong with the home after the sale, it could protect them from legal consequences. So how do you and the seller decide if a seller’s warranty is right for them?

In the case of older homes, a seller’s warranty is what the buyer and the seller want. A seller’s warranty can be purchased by the seller from an insurance company or a bank. Simply put, for as little as $300-$400, it can cover specified mechanical systems and appliances in the home for about a year. The buyer will still need to pay a deductible, but it’s normally only $50-$75.

For a buyer, a seller’s warranty may help entice them to take a chance on an older home that has older appliances.

For a seller, the seller’s warranty is a bit of insurance in case anything should happen to the home after the sale has taken place. Even though sellers are required by law to disclose to the buyer all that is wrong with a home prior to purchase, the buyer can still come after the seller if something major happens to the home within the first year. A seller’s warranty can help provide a safety net for all parties involved.

If the market is cool, a home warranty or a seller’s warranty can be a great way to close a deal. If the market is hot, a buyer may be willing to grab the house without a seller’s warranty and just accept that any issues that arise will be their responsibility. And if your seller or buyer is the cautious type, a seller’s warranty might be just the peace of mind they need to complete the sale.

When you’re ready to talk to your clients about a seller’s warranty, evaluate the market and consider the home, then highlight the benefits to them. Your clients will thank you for looking out for them.

Interested in home warranty products for your clients? CRES has done the legwork for you! We’ve negotiated special pricing and benefits from the country’s leading warranty companies, including First American Home Warranty Corporation (FAHW), Old Republic Home Protection, and Fidelity National Home Warranty. Learn more about the CRES Home Warranty Partners Here

This blog/website is made available by CRES Insurance Services for educational purposes to give you general information and understanding of legal risks and insurance options, not to provide specific legal advice. This blog/website should not be used as a substitute for competent legal advice from a licensed professional attorney in your state. Claims examples are for illustrative purposes only. Read your policy for a complete description of what is covered and excluded.

Originally Published November 25, 2015

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