Home warranties protect the buyer from the unexpected costs of home repairs and replacement costs of appliances. Although not required, warranties are strongly recommended. When a home is purchased, the home seller or the buyer may purchase the home warranty. The cost of the warranty is usually included with the settlement costs.

Homebuyers choosing to build a new home may receive a home warranty as part of the builder's incentive package. In addition to a warranty, the builder may also agree to cover any home defects that are detected within the first year.

Homebuyers should not confuse a homeowner's warranty with homeowners insurance. The two policies are very different. An insurance policy is intended to cover the expense for damages caused by fire and weather elements (tornado, hurricane, wind, etc.). On the other hand, a warranty covers appliances and home systems.

The average homeowner's warranty is effective for one year. Homeowners have the option of renewing the policy for an annual fee of $350 - $450.

If selling a home, offering a home warranty can attract potential buyers. In a buyer's market, many sellers are forced to include extra incentives in an effort to sell their homes quickly. Moreover, a home warranty can protect a seller from claims of failing to disclose certain home defects.

On the flip side, a home warranty benefits buyers because it offers peace of mind, and limits the buyer's out-of-pocket expense before and after closing on the purchase of the home.