Home insurance became a hot topic for me and my clients in the month of September. For several years now, many companies have refused to write new policies for properties in high-fire zones, leaving buyers with very few options that often force them to purchase an expensive California Fair Policy plan. As part of my process, I reach out to a local insurance agent, introduce them to my clients, and obtain an insurance quote prior to them writing their offer. Typically the insurance broker asks both property condition questions and a few about the potential buyer, and then will provide a quote. I have found that many buyers are not aware that high-fire zone locations command a much higher rate for insurance coverage, but it is important to know this upfront before you write an offer. If you waive your inspection contingency, you are also saying that you are waiving any insurability contingency as well. This means you can not back out of a contract without penalty if you do not like the insurance policy or rate attainable for a particular property.
In one situation, I had clients who wanted to write an offer on a home that was a fixer-upper in Berkeley and turn it into their forever home. They were hoping to do the work immediately and move in after the bulk of the messy work was done. After talking with 2 insurance providers, they found that obtaining an insurance policy for a home that needed a foundation replacement, had an original furnace and knob-and-tube wiring, and would be vacant for a few months while the work was being performed was nearly impossible. This information made my clients uncomfortable with moving forward with their offer.
Did you know insurance claims stay with a house, not the policyholder? I had clients who made an insurance claim within the last 5 years: their refrigerator water line leaked and my clients made a claim to repair some cabinets, replace damaged floors, and replace the fridge. When they put their home on the market and the buyers went to obtain insurance, the new insurance company needed to have written proof that the claim had been completely remediated. This meant that my clients had to find all of the paperwork from that claim. Additionally, the buyers had fewer insurance options and possibly higher rates.
So here are the key takeaways:
If you are a buyer and you are not willing to pay a premium for insurance, you should eliminate high-fire zone areas as part of your search. If you are a buyer and are interested in a property that has knob-and-tube wiring or very old systems, you may have few insurance resources and the more expensive California Fair Plan policy may be your only option. You can purchase the property with this policy but should budget removing the knob-and-tube or other systems that limit your insurance options, consult with your insurance provider, and then have an insurance inspection so you can apply for a new insurance policy at a lower rate.
If you are a homeowner and are considering a sale in the near future and you are faced with making an insurance claim, I suggest you obtain bids and see what the actual cost would be to repair the issue without a claim. Add up the costs and subtract your deductible, is it worth it? I realize you are paying hard-earned money every month and are entitled to utilize your insurance policy, but if the cost to make the repairs is low, perhaps the insurance claim can be avoided. If it can't be avoided make sure you keep all of your documentation, especially the part that the issue has been remediated. This is key, the insurance providers for your property’s buyers will need to see the verbiage that the issue has been remediated before they can issue any new policy.
Another insurance tip for homeowners is to check your policy to see if your insurance policy is up-to-date and accurate. I just called my insurance provider and found that some of the information about my property features in their system was wrong. Additionally, I found that I was underinsured, so I made the corrections and increased my coverage. While I am not happy about paying more in insurance premiums, I do want the peace of mind that I am properly insured.
Buying and owning a home can have some big rewards, but also is a big responsibility with continual maintenance. This includes making sure that you are properly insured, so I thought I’d pass on what I am currently seeing in an effort to best help all of you.
Reach out if I can be of assistance or put you in touch with a local insurance broker. With recent shifts in the home insurance industry, it’s best to be proactive about these things!
Thanks for trusting me with your housing needs and remember no question is too small, I am here to help!
