Answer: A home warranty is an insurance policy, usually good for a year, that covers the repair and/or replacement of many of the appliances and systems of a home. The promulgated contracts in Texas used by Realtors have paragraph (7H) that provides for an amount that the seller will reimburse the buyer for a home warranty. Since the appliances and systems (primarily HVAC and water heater) are generally used and the buyer has very little information about how they have been maintained, it is common for the seller to purchase a Home Warranty for the buyer to cover those items for the first year. After the first year, the buyer can extend the warranty at their own cost.
How Does It Work: If a covered item stops working during the warranty period, you can call the Home Warranty company and they will send someone to repair it. The service call generally costs around $60 and if the vendor can repair the item there are generally no further charges. If the vendor cannot repair the item they will replace it. Most Home Warranty companies have multiple levels of coverage that you can purchase in addition to optional coverage of items like pools, pool equipment, septic systems, sprinklers, wells and water softeners. All covered items must be functioning properly at the time that you purchase the property or they are not covered.
Who Should Pay For It: Like any other costs, this is negotiable. In a balanced market, typically the seller will pay for the Home Warranty. In a seller’s market this cost can often be transferred to the buyer. It is in the seller’s interest to purchase at least the base warranty coverage for the buyer so that if an item stops working immediately after closing the buyer can call the warranty company and not come back to the seller to argue over whether or not the seller knew it was broken prior to closing.
Expert Tip: The cost of the home warranty is discounted for the first year if purchased through a Realtor in connection with the closing. Having the HVAC serviced as part of your purchase will help ensure that it is working properly and covered.
Common Misconception: The Home Warranty does not cover all of the costs of replacing covered items. It is meant to help offset the costs of replacement and often will cover the majority of the costs. Depending on the level of coverage that you purchase, it may or may not cover things like disposal of old appliances, improvements required to bring systems up to code, permits and retro-fitting for old systems.
Here is a Video from Old Republic Home Warranties that explains what they offer