Who Pays for a Home Warranty and What It Actually Covers

Home warranties protect different people at different times in a sale

A home warranty is a service contract that covers the cost of repairs or replacement when major systems and appliances break down. The person who buys the warranty pays an annual premium — usually $400 to $900 — and then pays a service call fee (typically $50 to $150) when they file a claim.

In a real estate transaction, either the seller or the buyer can purchase the warranty, and it matters who does. A seller typically buys a one-year warranty to cover the home during the listing period and the first year after closing, which can make the home more attractive to buyers. A buyer can purchase a warranty at closing to cover years two and beyond, or independently after they own the home. The warranty does not cover what a home inspection finds before closing — it covers what breaks after you own it.

Home warranties are not the same as homeowners insurance. Insurance covers sudden damage from fire, theft, or weather. A warranty covers mechanical failure of systems and appliances that were working when the warranty started.

Key Takeaways

• Sellers often buy a one-year warranty to make their home more marketable; buyers can purchase their own warranty at closing or afterward to cover years two and beyond.
• A home warranty covers repair or replacement of major systems (HVAC, plumbing, electrical) and appliances when they fail mechanically, but not damage from accidents, neglect, or pre-existing problems.
• The annual premium ranges from $400 to $900, and you pay a service call fee of $50 to $150 each time you file a claim.
• Different warranty companies have different coverage limits, exclusions, and lists of approved contractors, so comparing the actual contract matters more than comparing price alone.
• A home warranty does not replace a home inspection; it covers breakdowns that happen after closing, not problems a professional inspection should have caught.

What a seller's warranty covers and why they buy it

A seller purchases a home warranty to shift the risk of mechanical failure from the buyer to the warranty company. If the air conditioner fails two weeks after closing, the buyer calls the warranty company instead of calling the seller to complain or demand a credit. This makes the home more attractive to buyers who are nervous about inheriting unknown problems.

The seller pays for the warranty upfront — the full annual premium at the time of purchase — and the buyer inherits the coverage. The buyer then decides whether to renew it for year two, or to purchase a separate warranty with a different company. Some sellers include the warranty cost in their asking price; others absorb it as a closing cost.

A seller's warranty typically covers the major systems: HVAC (heating and cooling), plumbing, electrical, water heater, and built-in appliances like the refrigerator, oven, dishwasher, and washer and dryer. It does not cover items the seller removed, damage from lack of maintenance, or problems that existed before the warranty started. If a home inspection found a failing water heater and the seller did not repair it, the warranty will not cover it.

What a buyer should know about purchasing their own warranty

A buyer can purchase a home warranty at closing as part of the transaction, or independently after they own the home. Buying at closing is simpler because the title company can roll the cost into closing costs, but it is not required. Some buyers wait to see if anything breaks in the first few months before committing to a warranty.

If you buy a warranty after closing, you will need to disclose any systems or appliances that are already broken or not working. The warranty company may send an inspector to verify the condition of major systems before issuing the policy. This inspection is different from a home inspection — it is limited to systems the warranty will cover.

A buyer's warranty works the same way as a seller's: you pay an annual premium and a service call fee when you need a repair. The coverage is identical regardless of who purchased it. The main difference is timing — a seller's warranty starts at closing, while a buyer's warranty can start whenever the buyer purchases it.

Coverage limits and what gets excluded

Every home warranty has a list of what it covers and a list of what it does not. Most cover the major systems and built-in appliances, but the coverage limits vary. Some warranties cap the cost of a single repair at $500; others cap it at $1,500 or higher. If your air conditioner needs a $3,000 compressor replacement and your warranty caps repairs at $1,000, you pay the difference.

Warranties exclude pre-existing conditions, damage from lack of maintenance, and damage from misuse. If you never changed the furnace filter and the system fails, the warranty company can deny the claim. If you used the wrong refrigerant in your air conditioner and it broke, the warranty will not cover it. If a home inspection found a problem and you bought the warranty anyway without disclosing it, the claim will be denied.

Warranties also exclude items that are not built-in. A portable air conditioner, a window unit, or a space heater is not covered. A built-in oven is covered; a portable convection oven is not. Read the contract carefully, because the line between covered and not covered is sometimes unclear.

How to choose between warranty companies

The price of a warranty matters less than what the contract actually covers. Two companies might both charge $600 per year, but one caps repairs at $500 and the other at $1,500. One company might exclude pool equipment and the other might cover it. One company might have a network of approved contractors in your area and the other might not.

Before purchasing, request the full contract and the list of covered items and exclusions. Call the company and ask what happens if a repair exceeds the coverage limit, and whether you can choose your own contractor or must use one from their network. Ask whether they cover the specific appliances in your home — some warranties exclude certain brands or models.

Check whether the warranty company is licensed in your state. Some states regulate home warranties and some do not. If your state regulates them, the company should be listed with your state's insurance commissioner or attorney general. If the company is not licensed where you live, you have fewer legal protections if they deny a claim.

When a home warranty makes sense and when it does not

A home warranty makes the most sense for older homes with systems that are nearing the end of their useful life, or for buyers who cannot afford a large unexpected repair. If your furnace is 15 years old and your air conditioner is 12 years old, a warranty might save you money. If you have $10,000 in savings and a major system failure would strain your budget, a warranty provides peace of mind.

A warranty makes less sense for new homes where systems are under manufacturer warranty, or for buyers with substantial savings who can absorb a repair cost. A new home's HVAC system is typically covered by the manufacturer for five years or more, and the builder may have a one-year warranty on the entire home. Buying a home warranty on top of that is redundant.

A warranty also makes less sense if you plan to sell the home within a few years. The annual premium adds up, and you cannot transfer unused coverage to the next owner. If you buy a three-year warranty and sell after two years, you have paid for coverage you did not use.

The difference between a home warranty and a home inspection

A home inspection happens before closing and identifies problems that exist at the time of inspection. An inspector looks at the roof, foundation, plumbing, electrical, HVAC, and appliances, and reports what they find. If the inspector finds a failing water heater, you can ask the seller to repair it or credit you the cost before closing.

A home warranty covers problems that develop after closing. If the water heater fails six months after you own the home, the warranty covers it. If the inspection found the water heater was failing and you did not address it before closing, the warranty will not cover it because it was a pre-existing condition.

This is why a home inspection is not optional and a home warranty is optional. An inspection protects you from buying a home with known problems. A warranty protects you from unexpected failures after you own it. You need both the inspection and the knowledge of what it found; the warranty is a separate decision about whether to insure against future breakdowns.

Frequently Asked Questions

Can I use my own contractor or do I have to use the warranty company's network?

It depends on the contract. Some warranties require you to use an approved contractor; others let you choose your own but reimburse you at a lower rate. Read the contract before purchasing. If you have a preferred contractor, call the warranty company and ask whether that contractor is in their network or whether you can use them.

What happens if the repair costs more than the coverage limit?

You pay the difference. If your warranty caps repairs at $1,000 and the repair costs $2,500, you pay $1,500. Some warranties let you upgrade to a higher coverage limit for an additional premium. Ask about this when you are comparing companies.

Does a home warranty cover cosmetic damage or wear and tear?

No. A warranty covers mechanical failure — when something stops working. It does not cover scratches, dents, discoloration, or normal wear. If your refrigerator compressor fails, the warranty covers it. If the refrigerator door handle breaks, it typically does not.

Can I buy a home warranty if I already know something is broken?

You can try, but you must disclose the broken item when you purchase the warranty. The warranty company will likely exclude that specific item from coverage. If you do not disclose it and then file a claim for that item, the claim will be denied.

Is a home warranty worth it for a new home?

Probably not. New homes come with manufacturer warranties on systems and appliances, and many builders offer a one-year structural warranty. Those warranties typically cover more than a home warranty would, and they are free. Check what warranties came with your new home before purchasing additional coverage.