Definition:
A Homeowner’s Warranty (HOW), also known as a home warranty, is a service contract that covers the repair or replacement of certain home systems and appliances that break down due to normal wear and tear—usually for one year after purchase.
Example:
After buying her new home, Rachel’s dishwasher stopped working three months later. Luckily, her home came with a Homeowner’s Warranty. She calls the warranty provider, who sends a technician to repair the dishwasher, and she only pays a small service fee.
Explanation:
A Homeowner’s Warranty is not the same as a homeowner’s insurance. While insurance covers damage from events like fire or storms, a home warranty covers items like plumbing, electrical systems, heating and cooling units, and major appliances. It provides peace of mind to buyers by reducing the risk of unexpected repair costs after moving in.
HOWs are often included by the seller as an incentive to attract buyers, especially in competitive markets. Buyers can also purchase a warranty themselves during or after closing. The coverage typically lasts for 12 months, and homeowners can renew it each year if they choose.
When something covered breaks down, the homeowner contacts the warranty company, which sends a licensed technician. The homeowner usually pays a set service fee per visit, and the warranty company covers the rest, depending on the contract terms.
Why is Homeowner’s Warranty (HOW) Important in Real Estate Transactions?
Homeowner’s Warranties are important because they add a layer of protection for buyers during the first year of ownership. For first-time buyers especially, it offers peace of mind and budget protection against costly repairs. For sellers, offering a HOW can make a home more appealing and help close a deal faster. It creates confidence for both sides in the transaction.