A home warranty can play a helpful role in a real estate transaction, but it’s also widely misunderstood. Buyers often think it replaces an inspection. Sellers sometimes believe it shields them from all future repair issues. Neither is quite true.

This guide explains what a home warranty is, how it works, and how it fits alongside inspections and negotiations during a home sale.

 

What Is a Home Warranty?

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A home warranty is a service contract that helps cover the cost of repairing or replacing certain major home systems and appliances that fail due to normal wear and tear.

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It is not homeowners insurance.

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• Homeowners insurance covers unexpected damage from events like fire, storms, theft, or liability claims.​

• A home warranty covers breakdowns of things like HVAC systems, water heaters, electrical systems, plumbing, and certain appliances — if they fail from regular use.

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Coverage depends on the specific plan purchased and the warranty company’s terms.

 

 

 

 

What Does a Home Warranty Typically Cover?

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While plans vary, many standard home warranty policies include:

Major Systems

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• Heating and air conditioning (HVAC)

• Electrical systems

• Plumbing systems

• Water heaters

• Ductwork

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Appliances (Often Optional or Tiered)

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• Kitchen refrigerator

• Oven/range/cooktop

• Dishwasher

• Built-in microwave

• Garbage disposal

• Washer and dryer

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There are usually coverage limits, exclusions, and service fees per claim. Not everything is covered, and pre-existing conditions may be denied.

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What a Home Warranty Does NOT Cover

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This is where expectations need to be managed.

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Home warranties generally do not cover:

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• Structural issues (foundation, framing, roof leaks)

• Cosmetic problems

• Code violations

• Improper installations

• Known pre-existing defects

• Damage from neglect or lack of maintenance

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If a 20-year-old HVAC system fails because it was never serviced, the claim may be denied. Warranty companies look for reasonable maintenance and normal wear and tear — not deferred upkeep.

 

 

 

 

How a Home Warranty Works

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Here’s the typical process:

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1. A covered item stops working.

2. The homeowner contacts the warranty company (not their own contractor).

3. The warranty company assigns an approved service provider.

4. The homeowner pays a service fee (often $75–$125).

5. The contractor diagnoses the issue.

6. If the problem is covered, the warranty company pays for repair or replacement up to the plan limits.

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The homeowner cannot usually choose their own contractor without prior authorization.

 

 

 

 

Home Warranties for Buyers

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Why Buyers Like Them

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For buyers — especially first-time buyers or those stretching their budget — a home warranty offers peace of mindduring the first year of ownership.

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After closing, everything in the house becomes the buyer’s responsibility. If the HVAC fails two months in, that’s no longer a seller issue. A home warranty can soften that financial blow.

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What Buyers Should Understand

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A home warranty is:

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• A buffer, not a guarantee everything will be fixed for free

• Limited by coverage caps and exclusions

• Subject to claim approval by the warranty company

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It’s helpful protection, but not a substitute for due diligence before buying.

 

 

 

 

Home Warranties for Sellers

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Why Sellers Offer Them

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Sellers sometimes provide a home warranty as part of the sale to:

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• Make their home more attractive to buyers

• Reduce post-closing disputes

• Show good faith about the condition of systems and appliances

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In some cases, sellers can also purchase listing coverage, which protects them during the time the home is on the market if a covered system fails before closing.

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Important Reality for Sellers

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A home warranty does not eliminate disclosure requirements. Sellers must still disclose known defects. A warranty cannot be used to hide issues or avoid responsibility for known problems.​

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