Editor’s note: In this two-part series, we examine the importance of comprehensive insurance policies for homeowners across the board, and the conversations real estate professionals should be having with clients. Stay tuned for part 2, where we’ll be focusing on flood insurance specifically.
It wasn’t so very long ago when acquiring insurance was nothing more than a minor step in the home-buying process. But recent wildfires, floods, tornadoes and other disasters like a condo collapse have made it a much more high-risk and expensive endeavor. While the odds of a property owner experiencing a horrific event in the U.S. are low, having comprehensive insurance is still obviously a must, and now a separate flood insurance policy is also recommended for many. RISMedia asked real estate professionals for their thoughts on the topic.
What aspects do you discuss with buyers regarding insurance?
Jessica Julian, a luxury real estate agent with Douglas Elliman, Palm Beach and South Florida: Insurance has become part of the budget conversation much earlier than it used to be. In South Florida, particularly with waterfront properties, buyers need to understand that the purchase price is only one component of what it costs to own the home. We encourage buyers to look at insurance, flood zones, the age of the roof, impact windows and the overall condition of the property early in the process. On a multi-million-dollar home, those details can have a meaningful impact on annual carrying costs, so sophisticated buyers want that information before they become emotionally invested in a property.
Josh Jarboe, broker/owner of REMAX Empire Buyers in Kentucky: I think it needs to be part of the affordability conversation from the beginning, particularly with first-time buyers or anyone already stretching their budget. Buyers tend to focus on purchase price and interest rate, but taxes and insurance can materially change the monthly payment. I also encourage buyers to get an insurance quote early once we identify a property they’re serious about. You don’t want to get deep into a transaction only to find out the premium is significantly higher than expected or there are issues insuring the property.
Pam Rosser Thistle, an agent with Berkshire Hathaway HomeServices Fox & Roach, Realtors® in Philadelphia: I recommend that buyers have a homeowners insurance representative run a CLUE (Comprehensive Loss Underwriting Exchange) report to check for any claims and the rates while they are going through the home inspection period. That way, it’s not a formal contingency, but they are able to do their due diligence. Prices have gone up. But getting insurance in Center City Philadelphia has not been a problem unless there is something unusual about the house, like knob and tube wiring (electrical) in older homes. Only certain companies will write a policy if there’s knob and tube.
Lisa Harris, an agent with REMAX Center, in Braselton, Georgia: I suggest early in the process that buyers investigate home insurance costs as soon as we begin searching for a home. Insurance has risen significantly and, ironically, the age of the roof is one of the most important factors when starting the insurance conversation. In Georgia, we have a due diligence period, and I always advise my clients to investigate insurance options then instead of waiting until the week before closing when it’s requested by the lender. Nobody likes surprises. Most buyers tend to focus on rates, monthly payments and HOA, but it’s important to evaluate insurance early in the process. Another huge benefit of checking early is that you’ll discover how many claims have been made against the property just in case it’s glossed over or omitted in the seller’s disclosure.
With sellers, have they cited insurance costs as a significant motivating factor for selling?
Pam Rosser Thistle: Not that I have heard.
Jessica Julian: I would not say insurance alone is typically causing our luxury clients to sell, but it has absolutely become part of the broader conversation around carrying costs. Florida homeowners have seen increases across insurance, taxes, maintenance and other expenses, and some are taking a much closer look at how much they are spending annually on a property they may only use for part of the year. For certain sellers, particularly those with older homes that may require significant upgrades to insure, that can influence the decision of whether to renovate, continue carrying the property or bring it to market.
Josh Jarboe: Not significantly in my local market. I haven’t come across sellers saying, “My insurance went up, so I’m selling,” at least not with any regularity. Where I do think it matters is as one more expense adding pressure to the overall cost of homeownership. Insurance, property taxes, maintenance and higher borrowing costs all compound.
Lisa Harris: The rising cost of homeownership collectively is a big battle for most. Most of my sellers are talking about things increasing so much that the entire cost of operating and maintaining their home has gotten out of hand. This includes everything from home insurance, property taxes, HOA dues and general maintenance. One recent seller couple quoted their operating costs up about $800 a month, and their combined salaries have not increased incrementally to cover it. Although a homeowner might have substantial equity or even own the home outright, the cost of operating it always is a strong concern.
What are insurance companies like to deal with these days?
Josh Jarboe: There seems to be considerably more scrutiny on the property itself. Roof age and condition, prior claims, deferred maintenance and other risk factors can become much more important than buyers expect. From the real estate side, the biggest thing is identifying potential problems early. Insurance used to feel like one of those boxes that simply got checked before closing. Today, agents need to be much more proactive about it.
Pam Rosser Thistle: Insurance companies are helpful and creative. They will offer suggestions for riders that match our market, like covering a water line repair. We have old pipes in Philadelphia, so that is useful. Something that has come up recently is the age of the roof and heater. If a seller does not know this, it might be hard for the buyer to get homeowners insurance.
Jessica Julian: The process requires much more diligence. Insurers are looking closely at the age and condition of roofs, windows, electrical systems, flood exposure and whether a property meets current building standards. Buyers cannot assume that because a home was insured by the seller, they will automatically receive comparable coverage at a comparable price. We advise clients to involve their insurance professional early and get property-specific information rather than relying on general estimates.
Lisa Harris: Most insurance companies are becoming more difficult and way less consumer- friendly. Insurance variables are a major issue in the U.S. that need to be addressed from a higher level. Until then, it’s important to budget for these potential variables. I always recommend that clients compare rates and customer service levels when selecting insurance companies.
What has changed insurance-wise recently?
Jessica Julian: One of the biggest changes I have seen is that insurance questions are now influencing how buyers compare two otherwise similar homes. A property with a newer roof, impact glass and updated systems can become significantly more attractive when a buyer understands the difference in insurability and long-term carrying costs. Buyers are increasingly looking beyond finishes and asking questions about the infrastructure of the home because they understand there is a financial value attached to it.
Josh Jarboe: Roof condition has probably created the most friction for us in Kentucky. We’re prone to severe weather; hail, high winds and tornadoes. A roof can still have useful life remaining and not necessarily be something a buyer would consider an immediate replacement, but insurability can change that conversation very quickly. Suddenly, what started as an inspection concern becomes a financing and closing issue because the buyer has to be able to obtain acceptable coverage. I’ve had numerous frustrating experiences with insurance companies and adjusters, but it seems to have become increasingly more difficult as more companies have moved away from independent third-party adjusters and toward their own in-house claims processes.
Anything else on the subject?
Jessica Julian: Insurance has effectively become another layer of due diligence in Florida real estate. Five or 10 years ago, a buyer might have focused primarily on purchase price, property taxes and maintenance. Today, insurance is part of understanding the true cost of ownership. I do not think it is stopping people from wanting to live in South Florida, especially at the luxury level, but it is making buyers more informed and more selective. Homes that have been properly maintained, hardened against storms and updated to current standards increasingly have an advantage because buyers recognize that those improvements have value well beyond aesthetics.
Josh Jarboe: Insurance doesn’t just affect the homeowner’s premium after closing. It can affect inspections, negotiations, financing, timelines and, in some cases, whether a transaction can happen at all. A property doesn’t have to be unlivable to create an insurance problem. Sometimes the insurance issue itself becomes the obstacle.
Lisa Harris: In Georgia, we have lots of creeks and streams that have caused major flooding over the years, so one of the first things I check for buyers before we ever visit the property is the propensity for flooding. Any time the home is near water, there is a possibility that the property could flood in the future and cause insurance rates to skyrocket. Today’s new buyers need to think beyond, “Can I afford to buy this house?” They must ask themselves, “What will it cost to own and operate this house in the future?”
Getting a free flood insurance quote
Homebuyers have the option of procuring floor insurance from either the federal government’s National Flood Insurance Program, managed by the Federal Emergency Management Agency, or from private insurance companies. For a federal policy quote, you and/or your clients can go to Floodsmart.gov, enter the address and some other information and get an instant quote, which can be used to negotiate with a private company if desired.
