Did you know an overwhelming majority — somewhere between 95%–98%— of real estate errors and omissions (E&O) lawsuits are filed by buyers suing sellers? The bulk of these claims do not arise from transaction failures but stem from buyer dissatisfaction with property condition issues discovered after closing.
In an industry full of risk and prone to litigation, not only are real estate licensees leveraging their E&O coverage to protect themselves, but more and more real estate professionals are realizing the benefits of securing a home warranty on top of their insurance.
A home warranty is a service contract that covers the cost to repair or replace major home systems, such as HVAC, plumbing and electrical systems, as well as appliances. Issues with these systems or breakdowns after closing are a common cause for claims and litigation, as too many problems can lead to allegations that these defects were intentionally concealed or ignored during the sale.
Not only do home warranties provide financial assistance and a clear path to repair or replace these items, but some providers offer enhanced warranties that offer additional benefits, such as optional structural coverage and savings on your real estate E&O policy.
Don’t regularly provide a home warranty to your sellers? Here’s why many top real estate professionals do — because of the hidden risks associated with residential transactions, and the potential underwriting benefits with their real estate errors and omissions provider. Consider how home warranties can improve satisfaction among all parties — and reduce your claims exposure.
The Hidden Risk Gap in Residential Transactions
Costly lawsuits often stem from minor problems. Put yourself in the buyer’s shoes: You’re happy, having just closed on the property of your dreams, when you begin to notice a damp smell in the basement. It takes you a couple of days to track down the cause — a leak in the water heater. You don’t know how long it’s been leaking, but you do know excess moisture and water can wreak havoc on homes, resulting in costly structural issues and conditions hazardous to human health that require professional remediation.
You reach out to the seller and agent with this concerning find, who point to their clean inspection reports as proof of their due diligence, but that’s also when you discover the HVAC unit is malfunctioning. Then, the dishwasher starts making a weird noise.
In the face of these mounting costs, outrage at the thought that the seller or real estate licensee knew about all these problems, but failed to disclose them, and fear that there are more hidden issues elsewhere in the home, the buyers feel they have no choice but to file a lawsuit to ensure their finances and investment are protected.
Whether the allegation of failure to disclose was real or merely perceived, this example demonstrates how property condition concerns — whether big or small — can easily lead to expensive, time-consuming and reputational-damaging lawsuits. Carrying a home warranty protects the buyer’s home for 12 or 13 months after closing, that critical time when new owners are settling in and likely to find issues. This makes home warranties an essential risk management tool for all real estate licensees, on par with an E&O policy itself.
Seller Disputes and the Role of Home Warranties
Everyone wants to do a good job; it can take a toll emotionally and reputationally if a buyer files a lawsuit alleging that the seller should have known about, or did know and intentionally concealed, costly issues with the home. On top of that, uninsured sellers who are sued by buyers often respond by suing their real estate agents, potentially putting you in the crosshairs of complex litigation.
Despite hard work and due diligence, errors happen, and even the most thorough home inspection reports and seller disclosures can overlook minor snags that become major issues once discovered.
Home warranties are a vital layer of protection and peace of mind for buyers, sellers and real estate licensees alike should something go awry after closing.
Some warranties provide structural coverage, protecting against defects in major home elements that are also among the most expensive to repair, such as the foundation, beams, columns and roof framing systems. Your plan should also safeguard common fixtures, such as HVAC units and water heaters. With these protections in place, you can reduce the perceived financial impact on the buyer, reduce your claims exposure and increase overall satisfaction in your services.
Not only do properties with home warranties typically sell faster and for more money, but should a lawsuit still come to pass, this quality coverage can provide valuable assistance with damages and legal fees. However, its most powerful benefit is its ability to shift the conversation from the blame game to a solution-driven mindset.
How Home Warranties Reduce Claims Exposure
In the earlier example, a deluge of sudden home-ownership issues after closing — a leaky water heater, a faulty HVAC system and a cranky dishwasher — became too much for our beleaguered homeowners, resulting in a lawsuit. But what could have happened if you had a home warranty in place?
When the upset owner reaches out to you and your seller, instead of merely providing proof of inspection, you’re empowered to defuse the tension before it sparks into litigation. Buyers are less likely to assert that defects should have been disclosed, leading to fewer claims. A home warranty gives your upset buyers an immediate avenue to address their concerns.
A warranty can ensure any complications related to the leaky water heater are resolved and the HVAC unit is repaired. Many policies have specific exclusions, however, so depending on the timing of the dishwasher issue, that might be a problem the buyers will have to resolve on their own.
Still, taking the major items off their plate with this coverage — as many home warranties also offer access to a list of qualified repair professionals — can help ensure your relationship remains strong while reducing the likelihood of litigation. See more powerful examples of how a home warranty can help protect your clients, as well as your real estate business,
Why CRES Home Warranty Partners Deliver More Value
Similar to your real estate E&O insurance, not all home warranties are created equal. CRES partners with leading home warranty companies selected for their claims experience and coverage reliability. Together, we provide you and your clients the best possible coverage and service, delivering additional benefits you won’t get anywhere else.
CRES stands apart with integrated home warranty solutions designed to work holistically with our pre-claim risk management legal services. Benefits include:
- Maximum seller protection – A CRES-qualified home warranty comes with up to $50,000 in Seller’s E&O Protection. This insurance helps protect your seller for up to 180 days after closing, with the option to extend, covering damages and legal fees.
- Optional structural coverage or waiver – The bones of a home can be some of the costliest to repair, putting you and your client at risk of a lawsuit should an expensive defect be discovered. CRES warranties offer optional structural coverage, where allowed, up to $10,000. Add the coverage to the home warranty or get the waiver signed to reduce liability.
- Reduced costs on CRES real estate E&O policies – When you carry both a CRES E&O policy and give a home warranty to your buyer or seller, you can reduce your out-of-pocket E&O claims expense by $5,000, saving you money and improving your bottom line.
CRES Qualified Home Warranty Partners offer the best coverage and added benefits to safeguard you, your clients and your firm. Thanks to their comprehensive understanding of your real estate exposures, you can secure much-needed peace of mind that lasts long after closing.
To reduce your exposure and achieve greater cost savings, review your real estate team’s current home warranty usage. Consider a new team policy to provide home warranties as part of your risk management procedures. Learn more about the benefits of securing a qualified home warranty from CRES.
The information contained herein is offered as insurance Industry insight and provided as an overview of current market risks and available coverages and is intended for discussion purposes only. This publication is not intended to offer legal advice or client specific risk management advice. Any description of insurance coverages is not meant to interpret specific coverages that your company may already have in place or that may be generally available.
Why Underwriters Want Consistent Home Warranty Use
When evaluating real estate E&O risk, underwriters look beyond claim counts for behaviors meant to reduce the likelihood and severity of future losses. Home warranties are one such behavior, serving as a valuable risk signal. Brokerages that treat them as standard practice through consistent use are often rewarded with better pricing and stronger underwriting outcomes.
What Counts as Lowered Risk?
Underwriters will want to see the following to ascertain if your firm has lower risk:
- Fewer post-closing disputes that escalate into formal claims.
- Earlier resolution of buyer complaints through third-party coverage.
- Reduced severity of disclosure-related allegations.
- Consistency in transaction practices across the firm.
How You Earn Credits
Lowering your risk demonstrates a commitment to reducing liability, ensuring a smooth sales process for buyers, sellers and real estate licensees alike. Your home warranty does so by:
- Shifting common complaints away from real estate agents and brokers.
- Providing a defined remedy, lowering emotional and financial escalation.
- Creating smaller and faster-resolved claims.
- Demonstrating proactive risk management if adopted firm-wide.
What Matters Most
In order to receive credits, you or your firm must demonstrate:
- Home warranty usage on all or a majority of transactions.
- Consistency across the brokerage, rather than licensee discretion.
- Documented practices that can be communicated during underwriting.
Provider Selection
Not all home warranties are built the same. Here’s what you need to know when choosing a home warranty provider:
- Underwriting credits may apply regardless of provider.
- Coverage quality matters when a dispute arises.
- CRES home warranty partners are selected to align with real-world E&O exposure and claims experiences.
More about CRES Qualified Home Warranty Partners and offerings in your state.
