The majority of buyers – especially first-time home buyers – will require a mortgage to purchase a home. Lenders require that buyers obtain homeowner’s insurance. When working as a real estate industry member, it is in your clients’ best interest to tell them of this requirement and caution them about properties that may be hard-to-insure.

Home insurance is provided by dozens of companies across the province. Competition is strong and rates will vary considerably, so it is a good idea to advise your clients of the possible benefit of obtaining multiple quotes.

In recent years, insurance companies have become less willing to insure some properties for a variety of reasons. Properties that may be hard to insure include properties with issues such as:

• Old wiring (knob and tube, ungrounded, Aluminum wiring)

• A furnace more than 20-years old

• Old plumbing (galvanized steel and cast iron)

• Old roofing

• Old wood-burning stoves and fireplaces

• Swimming pool or hot tub

• Asbestos insulation or siding

• Located in flood zone

• Located on a steep hill with heavy erosion

Any of the above issues could lead an insurer to deny coverage to a homeowner, as the risk of a payout is greatly increased. Even if an insurer agrees to insure a property with one or several of these issues, the premium will likely be much higher than if the property had no such issues. A thorough home inspection will likely identify issues that may be of concern to insurance companies. Insurance companies also need to know if a property is going to be owner-occupied, rented or left vacant.

Insurance companies will also look at a buyer’s/homeowner’s history. If a homeowner has filed one or more insurance claims in the past, have had a history of payment problems, have had cancelled, declined or lapsed policies, have a poor credit rating, or have been convicted of insurance fraud, the insurance company will take this into account and the premium will likely increase (if the policy is accepted at all).

Look into insurance early

It is important that consumers consider the insurance costs of their potential purchase before signing a purchase contract. As an industry member, it is your responsibility to remind buyers they will require homeowner’s insurance, particularly if they are placing a mortgage on the property, and that the property they wish to purchase may be hard to insure.

It is a good idea to raise the subject of insurance with your clients early in the buying process. A good time could be when you are listing other expenses a buyer will normally encounter when buying a home, such as lawyer’s fees and property taxes.

If you feel insurance may be an issue with the property in which your clients are interested, suggest making any offer conditional on the buyer successfully obtaining insurance for the property. This can be written into the purchase contract and can even include a set premium that your client must be approved for in order for the condition to be waived. This condition can also be specific to the problem you have identified with the property, and state that if insurance is denied because of that problem, the problem must be remedied by the seller up to a certain dollar amount.

Insurance should be arranged as early in the process as possible, preferably as soon as the offer to purchase is accepted. This gives the insurance company enough time to review an application. If a buyer waits too long, the closing of the transaction could be put in jeopardy.

Though real estate industry members are not expected or required to become insurance experts, they should be aware of issues that may arise when a buyer is attempting to obtain homeowner’s insurance.

 

 

 

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