I’ve seen some issues creep up lately when working with buyers who are looking for homeowner’s insurance, and would like to share a few tips on how you, either as a new homebuyer or potentially as a current homeowner even, can possibly save some money and avoid some common pitfalls.
What has prompted me to write this blog is the fact a few of my buyers recently have had trouble after closing with their insurance companies, which seem to be getting increasing particular about what they will and will not insure. This is especially a problem in New Orleans, where houses are typically older and additions have been made over the years. Everything may seem fine during escrow and you may even close with zero hiccups at all, only to find out a few weeks later that you owe more money or that your insurance company is dropping you (after spending a small fortune on downpayment, closing costs, moving, etc).
I’m going to lay out two scenarios I’ve had recently and explain afterwards what some the lessons were:
- In the first case, with one buyer I had, during escrow everything looked great to the insurance company, the house had been fully renovated just a few years ago, the quote was good and the buyer was happy. It even passed the 4-point inspection, which is frequently done after the act of sale (it is an inspection a lot of insurance companies are currently requiring, which looks at the roof, plumbing, electrical and HVAC to make sure they’re all in working order). Unfortunately the inspector he chose told him that they wanted an extra $125 to fill out this form, which he begrudgingly paid. Eventually we closed, and the insurance company sent their own inspector out, only to find that a very small part of the roof over one of the bedrooms was flat and they didn’t insure flat roofs. After lots of headache and phone calls many companies, he finally found one that could insure a flat roof, but it was $400 higher than the other one and he wasn’t very happy.
- In another scenario, a different buyer I had purchased a house that previously had a shed which was now just a metal frame. It was set up as an interesting artistic feature of the landscape with plants and pottery around it. Again, we closed and the home passed the 4 point inspection, but we come to find out that that the insurance company after closing wants it torn down because it was a metal frame and not wood (don’t ask me why this makes a difference?), not something the buyer wanted to do at all because it really was attractive in the landscape and it would cost money to remove/ haul away. Anyways, after complaining over a series of weeks to underwriters and various managers, he was able to keep his policy, but it ended up being a huge headache for everyone.
So, the problem that I’ve seen lately is that after closing is when these issues pop up – not before- and the question becomes for me at least, how can I protect my buyers from this so these issues don’t crop up in the first place?Here is what I’ve discovered:
- Ask your home inspector if they do a 4 Point Inspection. Some home inspection companies charge extra for this, which in my opinion is not good practice at all, as they’re already typically charging upwards of $400-$500 for the general inspection itself. To fill out a very quick sheet of paper with information they already know, I’ve seen them charge as high as an extra $150, when many others will do it for free. You should probably get a different home inspection company, and if you want suggestions, you can go here.
- Take lots of clear pictures of the home inside and out, from multiple angles and send to your insurance company before binding a policy. Send them via email, asking if there is anything that looks strange or like it might cause issues for the underwriter. This way, if they give you problems after closing about needing to fix something or if they say that they can’t insure for x reason, you can possibly refer back to this email and make a good case for yourself that they should have known from the get-go that x would be an issue.
- (In case any portion of the roof is flat, be sure and let the insurance company know from the beginning and ask if this will be a problem)
- This is unrelated to the above scenarios, but another issue I’ve seen a lot of is with regards to deductibles and contents insurance. A lot of agents will want to give what in my opinion are really high amounts on contents coverage. One buyer/ friend of mine, a single guy in his late-twenties, who likes to travel and has relatively few possessions, bought a 900 square foot house in the 7th Ward and the agent strongly recommended $80,000 in contents coverage! My buyer told the guy up front that most of his clothes were purchased at thrift stores, his appliances weren’t all that nice and pretty much all the furniture he owns was from Craigslist or used to belong to friends of his. So by lowering contents coverage to $25,000 (which was the minimum this company offered) he was able to save a good bit of money annually. Also, be aware that there are different deductible options that could substantially affect your premiums, so be sure to go over them with your insurance agent.
Moral of the story: be careful! Heed this advice of this blog and be sure to check with your Realtor if they are aware of any potential red flags for insurers. Also try and be as clear as you can with your insurance company from the get-go. Good luck!