Why insurance is getting harder to acquire — and a quick list of conditions making it so.
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The personal stories of one Realtor’s battles and triumphs in the highly-competitive Bay Area Real Estate Market, seeking to illuminate and humanize the very real ups-and-downs of homeownership.
“I’m sorry,” the email said, “but we need to extend the close of escrow by several days. State Farm has just canceled the policy they quoted my Buyers early last week.” (Say what?)
And then the next day, it happened yet again on another pending property of ours: “We need more time; we’re scrambling for a new insurance carrier,” their Agent texted.
WHAT THE $%&@!!!
Consequently, it’s no wonder that this week’s COMPASS meeting focused heavily on the topic of insurance and the difficulty/inability to obtain homeowners’ insurance in California. In what has become an all-too-common practice of denying insurance to homes in the hills (aka: the “fire zone”), rejecting prospective homeowners’ new coverage is quickly becoming the norm, instead of the exception — irrespective of where you live. (Say what??)
Alarmingly, we are witnessing one insurance company after another pull up stakes and abandon our fair state altogether.
This matters a great deal as lenders require proof of insurance prior to funding. Without insurance, there’s no loan, and if the loan is denied for lack of insurance, it’s difficult to close the transaction. (Thus, the mad scramble.) When you do finally manage to secure insurance via the California Fair Plan, it’s likely to be much more expensive, and you will also need a second “wrap-around” policy as well. (Insurance companies have us in a stranglehold.)
Moreover, insurance companies may cancel a policy at ANY time, whether or not the homeowner has ever made, or been paid out on a legitimate claim. It’s important to understand that your annual premium is just that: a yearly contract that comes up for renewal once a year, at which point the insurance company may issue a notice to unilaterally cancel your coverage with NO CAUSE. (Say what??)
Additionally, if you’ve made a claim (or even inquired about making one), you will likely receive a ding on your record, even if the claim was unrelated to your house; even if it was denied, and even if the insurance companies never provided one red cent, forcing you to shoulder the repairs and the responsibilities for the fix. (No, I’m not bitter.)
“Insurance insures both the property and the individual,” Leah Nishi*, of Farmer’s Insurance, said to the rapt group of COMPASS Realtors® on Tuesday morning at our office meeting. “So you want to think twice before making an inquiry, and absolutely avoid the trivial claim.”
“What’s trivial?” I asked.
“That’s up to you, but anything less than the standard $5,000 deductible should never be claimed or you’ll pay more for insurance as a result, or worse yet, get flagged for cancellation. Insurance is meant for damage that’s considered catastrophic.” (Define “catastrophic.”)
She went on to explain that in the world of insurance, every claim counts, even if the house has transferred ownership. Moreover, a claim is going to stay on your record for 3-5 years. By way of example, a claim from a PREVIOUS residence could very well impact the pricing of insurance on your new home. (Say what???)
“Additionally, ‘knob & tube’ has become the newest concern on the hit list,” she continued, “along with shake roofs, outdated electric panels, and overhanging trees. Ideally, there shouldn’t even be a shadow on the roof when overhead photos are submitted.” (That was a joke but no one was laughing.)
Dealbreakers
With that in mind, here’s the breakdown of unacceptable conditions that potentially make your home ineligible for insurance:
- Stab-Lok Electrical Panels, including:
- Federal
- Federal “No Arc”
- Federal Pacific Electric
- Zinsco Panels, including:
- Sylvania
- GTE Sylvania
- GTE Sylvania Zinsco
- Fuse box/panels with less than 100-amp service • Double-tapped circuit breakers
- Electrical Wiring:
- Knob and tube
- Aluminum wiring (does not include the exterior wiring from the electrical pole to the meter, noted on the inspection as ‘service wiring’)
- Cloth/fabric-wrapped wiring
- Additional Considerations:
- Large trees, especially those overhanging the roof
- Roofs older than 20 years
- Plantings up against the house
- Previous claims
Regrettably, like most insurance we purchase to protect our assets, the companies selling these products don’t want you to actually USE the coverage they offer. And because restrictions put in place during COVID made it virtually impossible for BIG insurance companies to increase their rates, they’re hightailing it out of town and leaving unsuspecting homeowners holding the bag. (That’s not nice.)
This is my long-winded way of saying that if you are writing a “non-contingent” offer on a property, make sure you have homeowners’ insurance in place PRIOR to submitting your purchase agreement. Even then (as we discovered last week), insurance is never a promise; it’s merely a quote, so you may want to keep that contingency in place until the close of escrow. (Say what?)
How can we help you?
*Many thanks to Leah Nishi for her expertise. Leah can be reached at Leah@nishiagency.com or at 510-473-5565 should you need insurance (and you will)!
Julie Gardner & Sarah Abel | Compass Realty
Not just Realtors, but consultants in all things house and home, we’re here to educate, explore, examine and refer . . . In short, you may count on us to take care of your home as if it were our own and anyone who knows us, knows we take pretty darn good care of our homes.
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