The real estate industry has seen a freight train of change over the past five years and it doesn’t appear to be slowing down anytime soon. Those of you who have survived–and even thrived–deserve every accolade. Reading the tea leaves, one thing continues to loom ever larger on the horizon of the American Dream of home ownership: Insurance. Only a few years ago homeowner’s insurance was barely given a second thought. Those halcyon days are long gone with the ever increasing reality of climate change in the form of fire storms, hurricanes, tornados and floods. You and your clients may well weather the storm of limited inventory and higher interest rates only to be leveled by homeowner’s insurance. Here’s how to make sure your deal survives homeowner’s insurance:
REASONS FOR THE CURRENT HOME INSURANCE CRISIS
Many of us are aware of the states that have been affected most by property insurance challenges: California, Florida, Texas and Louisiana might quickly come to mind. But now we’re also seeing many other parts of the country come under scrutiny, in particular states that are hurricane and/or tornado-prone areas, like Florida, Oklahoma, Texas, Kansas, Alabama and Missouri to name a few. In fact, home insurance statistics from 2023 show that weather-related claims made up almost 88 percent of property damage claims. Lack of affordable home insurance, and even the ability to obtain it are exacerbated by extreme weather conditions, inflation, rising repair costs and high home prices. More and more, states are facing the reality of having to ensure its citizens with homeowner insurance policies that are state-run and the insurance of last resort, usually quite expensive, and typically fraught with sub-par customer service. These are called FAIR plans–Fair Access to Insurance Requirements–and these are the states that offer them: click here. It’s easy to see that property insurance is undergoing dramatic changes and it’s possible that state-run insurance programs will become the norm for the future in the face of extreme weather.
BE PROACTIVE
As a real estate agent wanting to protect your deal from falling through due to property insurance challenges the most important thing you can do is be proactive. Make sure to have these unappetizing conversations with your sellers and buyers long before a property is either listed or put into a purchase contract. The time to determine whether or not homeowner’s insurance will break the bank and crush the deal is long, long before that last stretch of closing on the tail end of a contract. As a listing agent, being brutally honest about the insurance costs potential buyers may have to shoulder on the other side of closing is something that should be dealt with on the front end of listing. In fact, it very well may affect the listing price regardless of how perfect or stunning the property is. This is becoming a hard truth and it will be a reality check for your sellers. If your sellers have lived in the home for many years, chances are their homeowner’s insurance is relatively affordable by comparison to what new buyers will be facing. As such they may not be fully aware of its impact. Likewise, if you are working with buyers in certain areas that are prone to increased natural disasters, you should be having insurance conversations at the very beginning of the showing process. If your buyers are financing–and 74% are– increased insurance could well add hundreds of dollars every month to the deal, on top of a mortgage affected by higher-than-usual interest rates. Vetting the insurance reality early on will minimize loads of disappointment and wasted time at the end.
GREAT INSURANCE AGENTS ARE LIKE GOLD
Collect a contingency of great insurance agents and put them in your “favorites” on speed dial. These industry professionals can make the difference between deals that succeed and those that crash and burn. You may be covering an area, or several areas, that have different or combined insurance challenges. For example, many areas in California are prone to both fire and flood. And sometimes earthquakes as well. States like Texas, Florida and Louisiana are areas that experience regular flooding, a type of coverage that is usually an add-on to a “regular” homeowner policy.
KEEP YOUR EYE ON THE ROOF
Statistics show that 80% of all homeowners’ insurance claims have something to do with the roof. In many cases, it’s impossible to get coverage on a home unless the roof has at least three more years of life. Obtaining home insurance and possibly lowering its cost often begins with the roof. This is one area where you and your buyers might effectively negotiate a lower sales price if the roof is questionable. This is also an area where a deal can be lost–or saved. If you’re a listing agent, encourage your sellers to invest in a new roof prior to listing if it’s on its last leg. This will help eliminate future obstacles as the deal heads to closing.
DO YOUR HOMEWORK
Along with knowing neighborhoods like the back of your hand, months of inventory on available, microclimates and so forth, understanding the insurance realities of a particular neighborhood is key. Researching and knowing ahead of time the homeowner insurance realities of the areas you are working will allow you and your clients to create an effective, workable and realistic plan for the end game. Dealing with the complication of homeowners insurance at the get-go will solve many problems down the road and ensure successful closings. Despite well-laid plans compromise may be necessary. It’s possible that your buyers will have to set their sights on a slightly different location from that house-in-the-forest dream they once had. Now it may look more like a home in the suburbs not far from the forest….On the other side of the coin, sellers may need to reconsider the sales price and account for insurance costs if they are in a high risk area. Coming around to these conclusions will undoubtedly take some time, so best to get to it at the beginning.
Read: Know the Difference Between a Home Warranty and Homeowner’s Insurance
Read: What You Need to Know About Today’s Homeowner’s Insurance