A broken appliance or air conditioner can quickly derail a home’s sale, and it happens more often than most sellers expect. “Nationwide, the average annual failure rate for residential appliances and systems is 160%,” says Jim Mostofi, CEO of Choice HomeWarranty in Edison, New Jersey. “That means the average household will experience system failures 1.6 times per year.”
A seller’s home warranty won’t prevent breakdowns, but it can soften the blow. Here’s what it is and why more and more companies are using it as a competitive advantage.
What happens to home sales when the market cools?
Before we get into what a home warranty entails, it’s helpful to understand the environment you’re selling into.
In a buyer’s market, homes are sitting longer, price reductions are more common, and buyers are becoming more picky about every detail. “Anything that dampens buyer enthusiasm (such as the age or condition of the home) will lead to lower selling prices and longer days on the market,” said Seb Frye, a broker at California’s Compass Silicon Valley.
And with consumer sentiment at record lows, taking out a 30-year mortgage requires confidence. This is forcing sellers and listing agents to find ways to differentiate their properties, said Marty McClendon, a HomeSmart agent in Montgomery, Texas. “This could include seller concessions, appliances, or home warranties,” he says.
What is a home warranty and why should sellers care?
A home warranty is a service contract that covers the repair or replacement of major systems and appliances if they break down.
The following items are typically covered:
- HVAC (heating and cooling system)
- plumbing and electrical systems
- kitchen appliances
- water heater
- Optional add-ons such as pool and spa facilities, guest units, and freestanding ice makers
For sellers, it is also a liability shield. Once the sale is complete, everything in the home becomes the buyer’s responsibility. But not all buyers think that way. “It’s common for maintenance issues to occur within the first year, and many buyers will assume the seller is responsible,” Frey warns. A home warranty directs that dissatisfaction from the seller to the warranty provider.
How a home warranty can help sell your home faster
Every day a home goes on the market costs sellers money. Based on 2024 U.S. Census data, the median monthly cost of homeownership (including mortgage, taxes, insurance, and fees) is approximately $2,035, or approximately $68 per day. Mostofi estimates that a home warranty can speed up a sale by 45 days. At $68 per day, you’ll save about $3,052 in maintenance costs for an investment of about $825.
A home warranty can also attract more interested buyers and support a stronger asking price. While each deal is different, Mostofi estimates the overall return on investment for sellers to be about 300%.
Reduce negotiation friction and post-inspection impact
Many older homes reveal a long list of “defects” that make buyers nervous, often leading to price reduction requests of $15,000 to $20,000.
“A home inspection can make it seem like the whole house is a goldmine,” Frey notes. “But with a home warranty, buyers are protected from significant maintenance costs for at least the first year.” For sellers, that means fewer low-budget offers and less pressure to lower their asking price.
Home Warranty vs Price Reduction vs Seller Credit
Home warranties are a useful tool, but their coverage is limited. “You’re not going to appease a lot of buyers with a $1,000 guarantee on a $20,000 problem,” Frey warns.
Sellers need to pull several levers depending on the situation.
- a price reduction This is best when the home has been on the market for a while. This updates your home’s appearance on the MLS (the database agents use to list and search homes) and helps new buyers see it.
- a Seller’s credit Great for addressing specific known issues. An example would be a roof that needs replacement or help with the buyer’s closing costs.
- a home warranty Great for covering unknowns and giving buyers confidence in future home systems and appliances.
“Pricing your home correctly is paramount,” McClendon says. “But adding a home warranty adds value and peace of mind to your purchase.”
Best Situations to Offer a Home Warranty
A home warranty isn’t required for every sale, but it makes sense for most. Frey and McClendon agree that new construction is an exception because builder warranties and appliance manufacturer warranties already provide that coverage.
Consider offering a home warranty in the following situations:
- The house is several decades old. Aging systems and appliances tend to raise red flags during inspections, giving buyers pause and bargaining power.
- This home has been on the market for some time. Warranties won’t solve the price problem, but they can remove buyers’ doubts about older or run-down properties.
- Negotiations are stalling. Rather than succumbing to a lower price, a warranty can ease your concerns about the condition. “Even before escrow closes, it can pay for itself well,” Frey points out.
- You are dealing in used homes. McClendon recommends including a home warranty in every resale (previously occupied property or home) transaction. The peace of mind you provide your buyers is difficult to replicate with other benefits.
How Agents Use Home Warranties as a Marketing Tool
For listing agents, home warranties are a low-cost way to stand out. Frey provides one to every seller client as part of their listing presentation. “It costs nothing to order, which sets us apart from other agents,” he says. McClendon uses the same method, especially with older properties, where buyer hesitation tends to be greatest.
At its core, a home warranty is a demonstration of confidence in the home, the transaction, and the agent who represents it. In a market where buyers are cautious and deals are difficult to close, this type of reassurance carries meaningful weight.
