A home warranty is a one-year service contract that helps pay to repair or replace covered systems and appliances when they break from normal wear. It's not insurance, and it's not a promise that every repair is free. Used right, it smooths a deal and calms a nervous first-time buyer. Oversold, it turns into an angry client in month four. Here's how I talk about them.
The short answer
A seller can offer a warranty to make a listing more attractive or to settle a small inspection item. A buyer can buy one for peace of mind in year one. Coverage usually includes things like the furnace, water heater, electrical, plumbing and major appliances. Exclusions are common: pre-existing conditions, improper maintenance, code upgrades, and often sewer lines, roofs and some exterior items unless added. There's a service fee for each claim.
Step by step
- Know when it helps. Older systems that work but are near the end of their life. First-time buyers with tight cash. A seller who wants to calm buyer worries without doing repairs.
- Compare two or three plans. Look at what's covered, caps per item, the service fee, and optional add-ons (pool, well pump, septic, sewer line).
- Read the exclusions out loud. Pre-existing conditions, lack of maintenance, permits and code upgrades are the big ones.
- Put it in the contract. If the seller is paying, write it into the contract or the inspection resolution with the plan and dollar amount.
- Don't use it to dodge a real problem. A warranty won't pay for a furnace the inspector already flagged as failing. Negotiate that separately. See handling the inspection objection.
- Give the buyer the info at closing. Plan number, phone number, how to file a claim, and the renewal date.
- Remind them before renewal. A short note at month 11 is a nice touch and a reason to check in.
Who it helps most
| Client | Why it can help |
|---|---|
| First-time buyer | Limits surprise repair costs in year one |
| Buyer of an older home | Aging systems that still work |
| Seller of a dated home | Makes the listing feel less risky |
| Seller during inspection | Can settle a minor item instead of a repair |
| Downsizers and 55+ buyers | Predictable costs |
How to explain it to your client
"A home warranty is a service plan for the house's main systems and appliances for a year. If the water heater quits, you call them, pay a service fee, and they handle the repair if it's covered. It's not insurance, and it has exclusions, like problems that were already there. Let's read what this one covers so you know exactly what you're getting."
Watch-outs
- Pre-existing conditions. If the inspection found it, the warranty probably won't cover it.
- Service fees add up. Each claim has a fee.
- Caps per item. Some plans cap what they'll pay for a system.
- Sewer lines and roofs are often excluded or extra. See sewer scope.
- No vendor referral fees. Follow RESPA and your brokerage rules on any warranty company relationships.
- Not a replacement for an inspection. Always inspect.
Further reading
- Why a reliable home warranty matters on kennarealestate.com
- Home warranties for 55+ community buyers on kennarealestate.com
This is training for real estate agents. It isn't legal advice. Check with your managing broker.
Questions
Is a home warranty the same as homeowners insurance?
No. Insurance covers sudden damage like fire or hail. A warranty covers wear-and-tear breakdowns of covered items.
Who usually pays for it?
Either side. Sellers often offer one. Buyers can buy one at or after closing.
Does it cover pre-existing problems?
Usually not.
Can it settle an inspection objection?
Sometimes, for minor items. Not for a system that's already failing.
Do new homes need one?
New homes usually have a builder warranty. Read it first.
Brian Lee Burke is the founder of PadLeaders, a Colorado real estate broker licensed since 2003, team leader of The Kenna Group at Keller Williams DTC (formerly Kenna Real Estate Group) and the author of Mastering Real Estate and The Real Estate Playbook. More about Brian.