Definition
A company providing service contracts covering repair or replacement of home appliances and systems due to normal wear and tear. Warranties are distinct from homeowners insurance.
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Home warranty companies operate on a subscription model where the homeowner pays an annual or monthly premium and then a service call fee when they need repairs. Different warranty companies and plans have varying coverage limits, exclusions, and service quality. Some sellers offer home warranties to buyers as a selling incentive. It's important to understand what is and isn't covered before purchase.
Pro Tip
Carefully review warranty coverage limits and exclusions. Many warranties exclude major replacements.
Example
A buyer negotiates the seller to provide a 1-year home warranty as part of the sale, protecting the buyer against major appliance failures in the first year after purchase while the buyer is learning the home's systems.