As home prices begin to rebound – as much as 9.7 percent this year by some estimates – more home sellers are purchasing extended home warranties (also called service contracts) to give themselves a competitive edge.

“Securing your home with an extended warranty is a great way to set yourself apart from other sellers,” says Tim Meenan, Executive Director of the Service Contract Industry Council. “Buyers seek out homes that are covered by an extended warranty because it can potentially save them thousands of dollars in post-sale home repairs.”

A typical home warranty is a one-year contract that protects a homebuyer or current homeowner against the cost of unexpected repairs or replacement of major systems and appliances that breakdown due to normal usage or defects in materials or workmanship. Home warranties can be purchased at any time from realtors, builders and independent providers.

Home warranties provide a measure of financial control if a homeowner is confronted with unpredictable circumstances. Investing in a home warranty can:

• Save money and protect a homeowner’s investment. Warranties provide peace of mind because they are designed to protect against expensive, unforeseen repair bills. So, rather than having to make a significant outlay of cash when a costly appliance breaks down, the homeowner pays only a standard deductible per service call on covered components.
• Provide comprehensive protection. Many providers repair and replace covered systems and appliances regardless of age, make or model.
• Offer stress-free repairs. Home warranties refer homeowners to pre-screened contractors, sparing homeowners from having to find a competent contractor when they have a problem.
• Protect a homeowner’s emergency fund. Warranties can act as a buffer for those who have established an emergency fund or those who want to do so.

For home sellers, purchasing a warranty offers these additional benefits:

• Sets the home apart from others. Studies show that the vast majority of buyers prefer to buy a home that is covered by a warranty.
• Attract first-time buyers. Some first-time buyers can be intimidated by the costly nature of fixing or replacing systems and appliances. Having a warranty can help put their minds at ease.
• Avoid closing delays. A home warranty can minimize the chance that an appliance or system failure could postpone closing.
• Eliminate post-sale worries. If a breakdown happens after closing, the buyer can consult the warranty provider for repairs.
• Increase profit. Homes with warranties return a sales price that is 3 percent higher, on average.

Home warranties should not be confused with homeowner’s insurance, which covers the home and its contents in case of a fire or natural disaster such as hurricanes and lightning and provides liability coverage in case someone is injured on the property. Homeowner’s insurance does not typically cover damage to major systems and appliances due to wear and tear or defective components.

“Offering a home that is under warranty sends a message to prospective buyers,” Meenan says. “It says that you care about the product you are selling and that the buyer can have confidence in what they are buying.”

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