1. What Is a Residential Service Contract?
2. The Home Warranty Clause
3. The Function of a Home Warranty Clause in a Real Estate Sales Contract
4. Benefits of a Home Warranty
5. An NHSCA Company Code, or “Co-Code”
6. Coverage and Costs
7. Appliances and Systems

Residential service contracts are insurance policies that cover the repair or renewal of significant systems in the homes. These systems include heating, electrical, and plumbing. The buyer or seller of a house can buy a residential service contract. However, it is typically sellers who buy the contract, in order to encourage buyers to choose that property. 

What Is a Residential Service Contract?

  • Residential service contracts are also known as home service contracts and home warranties. 
  • The primary aim of the agreement is to safeguard the buyer from unexpected home system repairs. 
  • In a situation where a repair is necessary but the components are not obtainable, you may be given cash to purchase a replacement. This is different from a standard warranty, which automatically replaces the device when it stops working. 
  • An appliance that cannot be fixed is not always replaced with a substitute.

The Home Warranty Clause

There was a change in the Texas Association of Realtors Sales Contract for Homes. If they choose to, a seller can now fill in a blank space with the amount they will give towards the buyer's purchase of a residential service contract. Also known as home warranties, these contracts are offered by companies such as American Home Shield. 

The Function of a Home Warranty Clause in a Real Estate Sales Contract

  • A buyer can acquire a residential service contract from a residential service business, but the business must have a TREC license. 
  • In the case of a buyer purchasing a residential service contract, the seller must refund the buyer at the close of sale for the cost of the contract. However, the refund amount will not exceed a stated amount. 
  • Buyers should analyze their residential service contract to see the extent of the cover, as well as any exclusions and restrictions. 
  • Buying a residential service contract is not compulsory. Similar policies are offered by businesses that are licensed to trade in Texas. However, buyers should request the amount, even if they do not want the contract. 

Benefits of a Home Warranty

For sellers, there are lots of advantages associated with offering a home warranty to the buyer in real estate transactions

  • It minimizes the likelihood that an unexpected failure of a home appliance immediately after a sale would result in a buyer becoming distressed and asking the seller for help. 
  • In situations where the seller gives the buyer the full amount of the cost of the home warranty at the close of sale, the seller is also gaining an advantage. For this reason, primarily, sellers should be inspired to offer home warranties.  
  • A home warranty is effective in making repair-related discussions easier. This is particularly true when an older device is functioning as it should but is likely to need replacement in the near future. The buyer is reassured that the device is covered for a minimum of one year, and they might be more likely to go ahead with the purchase. 

An NHSCA Company Code, or “Co-Code”

The NHSCA started to offer an NHSCA company code or "Co-Code" to all of their associates in 2012. This makes it possible to differentiate businesses from one another. It is also a way to ensure that you are working with an official and respected member of the home service warranty industry. 

Coverage and Costs

Typically, a warranty will include any covered home device or home system that is not functioning correctly as a result of typical use. You'll find that contract fees will depend on both the company and the location. Generally, a simple contract is likely to cost from $400 to $550 a year. For a house call, you can generally expect a charge of around $35 to $100, but this varies according to your region of the country. 

Appliances and Systems

The amount and type of coverage vary by provider, and there may also be some differences depending on the location of the provider. Home warranties and service contracts do not cover all contents and parts of the home. The majority of them exclude foundations, walls, and finishes. 

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