Believe it or not, when selling a home one of the things you will need to confirm is that it is insurable! Just because you have insurance on it today does not mean a prospective buyer will be able to get insurance. And if a buyer is not paying cash but is taking out a loan to buy the home, the bank will not give them a loan unless they can get insurance. And even if a buyer is paying all cash they will want insurance to protect this important asset.
You may have read that a number of insurance companies such as State Farm, AllState, and Travelers are no longer writing property insurance for homes in California. Companies like Triple A and Mercury are oversaturated in San Francisco right now so it is more challenging to get a policy with them. Hartford and CIG are writing property policies but they don’t write above $1.5M for the replacement cost of the structure. With construction costs currently around $1000 per square foot, that means rebuilding a 1500 sf place, at most. Chubb and Pure will write policies for homes with a replacement cost over $3M. For those homes with a replacement cost between $1.5M and $3M, Farmers may be a good option.
Two less-optimal possibilities are the California FAIR Plan Act, and non-admitted carriers. The California FAIR Plan Act is an insurer of last resort that you access through a broker, and is generally considered a temporary insurance until a more permanent one can be obtained. Since non-admitted carriers do not have California insurance licenses and do business through wholesale brokers, they aren’t required to follow the same state regulations as admitted carriers and importantly, if the insurance company fails, the state would not step in to make payments on claims.
If you are selling your home, as a strategy in this market it is best to meet the requirements for an insurable property. What are they?
- Make sure the home has no knob-and-tube wiring and has been upgraded electrically;
- Replace the roof if it is tar-and-gravel after 10 years; bitumen after 25 years; and tile, slate or concrete after 30 years;
- Ideally, the plumbing should be updated with copper piping but this is not a strict requirement;
- Make sure the heating is no older than 25-30 years old; and
- Make sure any outstanding insurance claims have been closed.
By making sure a home that is coming on the market complies with the above, it will be easier for a prospective buyer to get insurance and it will be easier to sell.
I recently helped a seller remove the knob and tube from her home which made a big difference in buyer enthusiasm resulting in multiple offers and a price substantially over the list price. If you need someone to help you list your home and work through this quagmire, I’d be happy to help.
Alie Lopez with ProCo, an insurance services company, provided much of the information for this blogpost. She is very knowledgeable about the insurance market and can be reached at (415) 223-7514.