Should Sellers Offer A Home Warranty When They List?
Updated: Aug 30, 2022
You've decided to sell your Baltimore home. The market has started to soften. Demand has dropped in the wake of the rising interest rates and you want to make your home appealing to prospective buyers. Is offering a home warranty to the buyer going to set you apart? And is it worth the money? Here's a tip you'll want to know when selling your home in Baltimore.
I've been in the Baltimore real estate industry since 2008. Prior to becoming a full-time realtor, I spent eight years operating a large rental portfolio consisting of more than 700 single-family homes in the Baltimore area. During this time I learned what it really meant to operate real estate, how to boost income and limit expenses to see the most profit possible. When I meet sellers in the Baltimore Area now, they are aware of at least some actions needed to generate the highest sales price possible. But sometimes where to spend money and how to save money aren't as obvious. My mission is to list homes for sellers in the Baltimore Area and help them earn and keep the most money possible during the process.
Baltimore Home Sellers : "Should I Offer A Home Warranty When I List My House?"
In the Baltimore Area, homes are not selling at the rapid pace they were a year ago. There are still fewer homes on the market than we typically see, but there are also fewer buyers looking to purchase, thanks in large part to the recent increase in interest rates. As we resume to a slightly more balanced market, sellers are asking me what they can do to both attract buyers and also control their expenses. Enter the question : should I offer a home warranty when I list my house?
What Does A Home Warranty in Baltimore Cover?
What is a home warranty exactly? A home warranty typically protects against a home’s major systems : heating, cooling, plumbing, electric and appliances. It generally covers the systems for one year and costs roughly $700+/-. Some home warranty providers also include roof coverage, for an extra fee. Typically, you can obtain a home warranty at any time as long as the systems are in operating order when the home warranty is purchased. Many home warranty companies offer a home warranty that will cover a seller while the home is on the market and then be transferable to the new purchaser for one year after the sale. Sounds interesting - so is it worth doing?
Is It Worth Purchasing A Home Warranty?
So, is it worth purchasing a home warranty at the time of listing and advertising that one exists and is transferable to the buyer? In my professional opinion, no.
Why A Home Warranty Isn't Necessary When You List Your Baltimore Home
What does a home warranty really offer? A home warranty limits an otherwise unexpected costly expense. So, why isn't offering a home warranty to a buyer from the onset worth it?
Here's why a home warranty isn't necessary when you list your Baltimore home :
#1 - It’s Not Common
In the Baltimore Area, it’s pretty rare to see a home listed with a home warranty. So by not offering one, you're not falling short on what's commonly expected by buyers.
#2 - It's Not Cheap
In the Baltimore Area, a home warranty that covers the major systems : heating, cooling, plumbing, electric and appliances generally costs around $700+/-.
#3 - The Home Warranty’s Purpose Is Not To Protect You From Having To Pay To Upgrade A Functional System
What to know about home warranties before selling : there’s a common misconception among sellers in the Baltimore Area about home warranties, that for example, if your furnace is 18 years old (and these typically last 20-25 years, maybe more if you’re lucky) that 1) the buyer can request that you upgrade it AND 2) that a home warranty would cover you in this scenario. Neither is exactly true.
1) The most common inspection contingency allows for a buyer to perform an inspection and request that the seller make some repairs, which then becomes a negotiation between the parties. In Baltimore (and generally in Maryland), contracts are created from forms provided by the Maryland Association of Realtors. The common inspection contingency form specifically says "Scope and Limitations of Inspections : The purpose of any inspection(s) is to discover unsatisfactory conditions, if any, of the components and systems of the Property, and any other conditions identified. The future condition and performance of the systems and components are not warranted by Seller and are not to be considered subject to this Addendum." Read : the scope of the inspection is not for future performance and upgrades. 2) The purpose of the home warranty isn’t to upgrade an older, working system either. The warranty comes into play when the system is not working. At that time, the homeowner can contact the warranty provider who will send out the appropriate service person. That person will make a determination as to whether a repair can be done or if an upgrade is necessary. That determination is made by the warranty provider once the faulty system is evaluated, not the homeowner.
In short, if your system is working, the buyer can't ask you to upgrade it. And even if the buyer could ask you to upgrade it, the warranty company isn't going to do it if the system is working today. So, why spend the $700+/-?
In Baltimore, Is There Ever A Time to Offer A Home Warranty?
Yes. But use it as a negotiation tool, if necessary, rather than offering it upfront.
In the scenario where a buyer had the common inspection contingency where he or she could have an inspection performed and then request repairs, and the furnace was old but functional, he or she can’t ask you to upgrade it. But if the buyer is concerned about the age and budgeting to replace it (and maybe other older, currently working systems in your house) the buyer could technically walk on the contract (and lose their deposit). You could remind the buyer that the buyer can purchase a home warranty once the house is transferred. But, ultimately, you could offer to purchase a home warranty to put the buyer and ease so you don't have to start all over and put the house back on the market. This is buyer specific though, while the age of the furnace may bother one buyer, another buyer may be an HVAC technician and may not be concerned about that age of the system at all, knowing he or she can save money on labor (and maybe also on materials) when the time for repair or upgrade arises. So don't offer the home warranty at the onset, see how the inspection phase plays out and offer the home warranty if it's necessary to keep the deal alive.
Another scenario - a buyer may have a different type of inspection contingency whereby he or she can request an inspection without the option to ask for repairs, but with the option to terminate the contract (and get his or her deposit back). If the buyer is considering terminating over concerns with the age of the systems, again remind the buyer that the buyer can purchase a home warranty once the house is transferred. Ultimately, you may consider spending the $700 on a home warranty to keep the deal alive rather than starting all over and putting the house back on the market. Again, this is buyer specific. What matters to one buyer doesn't concern another buyer, so see how the inspection phase plays out and offer the home warranty only if necessary.
There’s even a strategy as to when to purchase the home warranty if you agree to one. We can talk about that if we end up offering one in your deal.
There are some scenarios where you may want to offer a home warranty to get a deal done. But keep this option in your back pocket for use only if needed, rather than spending the money upfront.