Insurance has been a glaring mess in California, and it’s really starting to affect the housing market. Today, I want to share some things I’m hearing from the real estate community after asking for feedback on my social channels about home and fire insurance. The goal is to give some perspective and advice to sellers and buyers. This isn’t meant to be negative or sensational either. Let’s talk about the market that actually exists. Bottom line.
NOTE: I welcome any comments, particularly from insurance agents and real estate agents. What are you seeing out there? What advice do you have?
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4/25/24 HomeSmart iCare Realty
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5/15/24 KW Roseville Event
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6/6/24 Golden 1 Credit Union (details TBA)
6/11/24 Elk Grove Regional MLS Meeting 8:30am
6/13/24 Sacramento Realtist Association (details TBA)
6/21/24 Exporting data from MLS (details TBA)
9/17/24 Downtown Regional MLS Meeting Q&A 9am
9/20/24 How to Think Like an Appraiser class (details TBA)
10/29/24 Orangevale MLS Meeting
INSURANCE ISSUES ARE A PROBLEM IN REAL ESTATE
When talking to the local real estate community, it’s emphatic we’re seeing the effect of uncertainty in the insurance market within real estate transactions. As one agent put it, neighborhoods that shouldn’t have a problem with insurance are having a hard time getting new policies or getting dropped. So, it’s not just fire territory with issues these days. Here’s a snippet from Reddit first shared from Realtor Matt Castillo. While this is in the Bay Area, it lines up exactly with what I’m hearing locally.
BUYERS, GET A QUOTE AS SOON AS POSSIBLE
Real estate agents have been clear about the importance of buyers getting an insurance quote as soon as possible after an offer has been accepted. It could be important to get multiple quotes too. For instance, one agent told me a buyer got three quotes ranging from about $1,100 to $2,600.
REPORTING A CLAIM MIGHT GET YOU DROPPED
There are many stories right now about people getting dropped from their insurance after reporting a claim. Someone told me today about his dad having been dropped after reporting a downed fence. And another person was contemplating not reporting a fence issue. Look, even at my own house, the wind blew down a fence a couple of months ago, and I did NOT report it because the insurance market is too volatile right now. Please know this isn’t advice for what other people should do. My concern personally is being dropped and then having insurance double or triple.
GETTING DROPPED IS A THING EVEN WITHOUT CLAIMS
Some insurance companies have left the state, which has led to consumers being dropped. Other times insurers are simply increasing the policy or asking owners to make repairs to keep a policy. I talked to a friend today who had her policy increase by 80%. My advice was to shop for a different policy to hopefully find something less expensive. But backing up, there are many stories about people getting dropped and then paying 2 to 3 times the amount for a new policy. And this is NOT just in fire territory or due to a claim. In short, it feels like walking on eggshells with insurance companies.
QUOTAS RUNNING OUT BEFORE ESCROW CLOSES
Many insurance companies can only write so many new policies right now per month, so it can be a problem during an escrow when a buyer gets a quote, but then the insurance company offering the policy is no longer able to provide the insurance since their quota for new policies was reached for the month. I had several agents tell me about this happening during escrows.
SELLERS, PLEASE LISTEN UP
A buyer might need more time right now to get a quote from an insurance company, so please be patient and realize it could take multiple weeks to get a quote. Moreover, if a buyer struggles to get an affordable quote, this might cause the buyer to want to walk or negotiate concessions or a lower price. Many buyers are already having a hard time affording the market, and an insurance quote that is too high could actually make a difference for the buyer’s loan eligibility. Anyway, be ready for this, and be careful about playing hardball when buyers are already feeling the pain of higher mortgage rates. I realize some sellers want to just sell “as is” too, but that may not be possible unless you have a cash buyer. Lastly, I’ve heard of situations where a buyer has struggled to obtain a reasonable quote due to previous insurance claims made by the current owner. I know this seems unfair, but the prior actions of the seller can sometimes affect the quote a buyer gets.
NITPICKING ISSUES ON OLDER HOMES
This week I had multiple agents tell me about insurance companies struggling with nob and tube electrical or old plumbing. I had someone else tell me the age of a house was a problem for finding insurance from any source besides the FAIR Plan (house was not in a fire zone). On that note, many real estate agents are being proactive about upfront investigation to help sellers consider potential issues. It seems like the older housing stock is being affected here more than anything. Anyone have a take on that?
FALLING OUT OF CONTRACT
I’ve definitely heard of deals falling out of contract because a reasonable insurance quote could not be found. In one instance, the buyer was dismayed after the annual insurance fee cost as much as the property taxes. Or another prospective buyer walked when insurance was going to be about $3,000 on a house under $500,000.
THE DEALS THAT ARE HAPPENING
It’s easy to sensationalize the insurance issue and say no sales are happening, but that’s not true. This is where we need to pay attention to all the deals that are closing instead of just the ones with issues. Know what I’m saying? In short, let’s continue to watch the number of pending contracts and closed sales carefully to help form our narrative. The danger in real estate is to paint a picture of the entire forest by focusing on just a few trees.
PURCHASING POWER IS ALREADY NOT GREAT
I don’t think we’ve reached a big inflection point where buyers are backing off the housing market en masse due to insurance issues alone, but the rising cost of insurance is a glaring problem. At the least, there are escrows falling apart because of this. Frankly, it’s hard to exhaustively analyze the trend since there isn’t a database to compare insurance quotes, locations, and specific escrows. Basically, all we have right now is the word on the street, which is why we need to listen to many stories from the trenches of transactions.
CRUSTY STATS FROM CALIFORNIA
As far as I can tell, the California Department of Insurance has only released stats through 2021, which is very unfortunate. Here’s a look at the most “recent” data published on their website, and I think we can all agree we’re going to see a major change once we get more numbers ahead. In fact, the Sacramento Bee reported recently that the California FAIR plan added about 15,000 new policies in the state in February alone. Moreover, the Sac Bee also states there are 373,000 properties under the FAIR Plan right now (published stats show 268,231 through 2021). If anyone has access to more robust data, please speak up. By the way, the link above has stats for every county in California.
OTHER ADVICE OR STORIES
I’d love to hear any advice from the real estate or insurance community. It would be great to hear from buyers, sellers, and owners too.
Thanks for being here.
NOTE: I am still jet-lagged from a trip to New York City. I’m hoping I don’t have too many grammatical errors in today’s post. 🙂
Questions: What are you seeing in the market right now? Anything to add? What did I miss?
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Great info! Thank you!
Thank you so much, Kaye.
Business Insider put out an article about this issue recently. It’s an issue that extends even outside of California. (I don’t know how to insert the link here, so I’m attaching the long form)
https://www.businessinsider.com/why-its-expensive-to-own-a-home-mortgage-insurance-interest2024-4?utm_source=copy-link&utm_medium=referral&utm_content=topbar
Also, it seems like there’s a potential issue with insurers not covering damage for un-permitted builds as well. I heard that from a talk with the deputy director of Placer County building services. It’s a really important topic to discuss with buyers and sellers for sure. So thank you for digging into it on the local level!
Thank you Mary. I’ll check that out. This issue has definitely been buzzing in media lately. Rightly so since consumers are truly feeling this. I’d be curious to hear from people in other states. I am definitely hearing about some problems in places like Texas and Florida, but I don’t know exactly how widespread this goes.
Insurance broker in Texas here but from a family chock full of appraisers.
Hard market in TX and prices have gone up tremendously. I have a lot of very difficult conversations with existing clients and buyers. Clients have existing home insurance policies dropped out of the blue or double in price. Imagine being on a fixed income and your taxes and insurance are relentlessly increasing YOY.
Don’t claim if you can avoid it. You have to pay your deductible – how much are you really getting back at the end of the day? It needs to be substantial to move forward with even a phone call to the insurance carrier (every time you call it goes on your claims record, even if they close the claim as $0). Acts of God (fire, hail) rate better than a water claim (pipe burst, etc) which indicates it’s a house problem.
Buyers who aren’t purchasing a standard new build face hurdles, particularly if they’re in Dallas/Ft. Worth or Houston. Prices are up state-wide but there are pockets where it’s more stable. Austin, where I live, for instance.
Hot mess on a silver platter. We hear rumors of stability in 2025…but they said that in 2023 about 2024 as well…
(I’m only licensed in Texas and insurance regulation varies state by state)
Thank you Lauren. I really appreciate the time you took to scratch out these thoughts. Hot mess on a silver platter sounds about right. This is really hurting consumers. I hope for stability at some point.
On a related note, I actually reported a motorcycle crashing into my car to insurance a few years ago, and I wish I wouldn’t have done so. I know that’s auto, but it’s really the same thing as it went into the file even though nothing came of it. The deductible was going to be higher than it was worth for me to repair. A motorcycle fell onto my stationary car when splitting the lane, and then he sped off. Long story short, when I tried to shop auto insurance over the summer, this incident was in the file that other insurers had access to. Doh!!! Anyway, I’m very aware of this dynamic with home insurance too. I will not be calling them for anything unless it is so serious. Honestly, it’s hard to get insurance to even cover damages, so it’s a bit discouraging to have them out anyway. 🙂
In a recent virtual meeting, there were hints of hope regarding the availability and cost of insurance from a very reliable source. Unfortunately, this won’t probably come to light until 2025. Stay tuned…
Hmm, I hope that comes to fruition. The wheels of my mind are wondering what that could mean. Haha. Thanks Paula.
Cautionary Tale-
Facts:
. Purchased 108 yr old home in Oct ’21 – Covid time.
. Insurer was AAA – I already had 3 other AAA policies inforce.
. After close, they requested an outside inspection. Scheduled with AAA but, inspector never showed up.
. Notice of request for evidence of repair received but, areas needing repair were not specified.
I requested repair specifics and inspection documentation photos from their non-existent inspection. Rec’d letter from AAA stating required roof and gutter repairs and gutter clean out, no documenting pictures or specific drawings detailing areas needing repair were included.
Prior to purchase, areas of the roof and gutter structures were repaired. However, pictures of the house with these un-repaired items appeared in prior listings on the Web. Forwarded copies of old pictures from the Web and asked if these were the areas in question? I stated that if so, they were already repaired prior to purchase of home and effective date of policy, and if a true onsite inspection had been completed they would have seen the repaired results. Received same response stating they needed documentation that the “repairs” had been made, still no documentation or detailed description of specific needed repairs were included.
Sent pictures of entire roof, gutter system for the house and outbuildings together with repair invoice dated from before house purchase and effective date of policy. I also again included old pictures found on the Net.
In the meantime, the policy was not renewed and they had to rewrite the policy after a month’s lapse in coverage.
Callus Moral of the Story:
Why bother to go out and do real physical in-person inspection when then company you work for is so overwhelmed they will never realize you can just surf the web from the convenience of your desk?!?
Recommendation: Considering the current “un-insurable” climate of insurance companies, prior to listing a property, it would be prudent if both agents and owners scour the Web to make sure no “bad” pictures of their property are “easily” found using a quick Web Search…
Wow, that is sobering. What strikes me is how lazy their investigate process is. To the consumer, the outcome can matter greatly, but the process is a joke if there isn’t even an inspection taking place. That’s a bit sobering that old MLS photos could be used too.
Great Job Ryan. Excellent points!! You did a great job condensing a very complicated topic. ?
Thank you so much Renee. And if there’s anything you want to clarify or mention as an actual insurance professional, we are open ears here.
Super interesting California prospective on insurance.
Fingers crossed the PNW doesn’t have any issues like we’re having.
I live in Florida- we have the same insurance woes here. Primarily, it’s regarding the roof age, And then a host of other items. I am both a realtor and an appraiser. I sold a house a few months ago, And seller was backed into a corner because The house was owned by her elderly mother who had been moved into an assisted facility. So the house was empty, and her daughter was selling it. When the insurance policy came up for renewal, They would not renew because the house was empty.
* I think all realtors should ask this question up front : When is your policy up for renewal? And if the house is vacant, you have a whole other issue.
I had an inspection done, prior to the sale and there were some very expensive (frankly silly) repairs- the long story short is that the insurance made the call every step of the way for the sale of this house.They were in control of the situation.
Let’s talk about auto insurance!
All these insurance companies are running amok in my opinion and some new companies have no backing. It’s just turning into a big scam fest!
Thank you Dana. I really appreciate your perspective. It really does feel like a scam right now. We pay for a product we have to probably not use at the moment. Or maybe I should say it feels like an unhealthy manic relationship in middle school. You just don’t quite know how the other person is going to act from day to day….
“Unhealthy manic relationship in middle school” is the PERFECT description! I’m won’t talk to them, I don’t like them anymore, … but we’re still going out because… optics (aka my mortgage servicer).
Thanks Sara. I wish that wasn’t a fitting description, but it really is.
I am very active in my local high-fire community, in the Firewise and Fire Safe Alliance efforts. With FAIR plan and State Farm premiums going up, I’m getting lots of calls from residents about what to do. Most of my neighbors with State Farm (who did not get dropped) are now paying premiums that are higher than FAIR plan on a comparable home. I am advising my clients that plan on selling in the future, to invest some time and money into home hardening, because it will likely be a bigger factor in the marketability of the home in the future.
Thank you Dory. This is solid insight. It’s wild that State Farm is coming in above the FAIR plan.
Great Article!
Thank you very much. And please pitch in your insurance knowledge anytime too.