Sacramento Appraisal Blog

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California Fair Plan

An insurance crisis wasn’t on my bingo card

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It wasn’t on my housing market bingo card to be paying such close attention to insurance, but this is a huge deal for California (and some other states). I promise this won’t become an insurance crisis blog, but today I have some brand new stats to share for Sacramento and the Bay Area.

ildfire line on hill at night, red flowers destroy everything. The title of today's blog post is in the middle of the image in black font in a white rectangle.

UPCOMING SPEAKING GIGS:
6/5/24 Marketing Mastermind (register here)
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 here)
6/21/24 Exporting data from MLS (details TBA)
7/9/24 Future Homes Q&A (private I think)
7/11/24 She Invests – REI Networking Group 6pm (details TBA)
9/17/24 Downtown Regional MLS Meeting Q&A 9am
9/20/24 How to Think Like an Appraiser class (details TBA)
10/18/24 Prime Real Estate (private)
10/29/24 Orangevale MLS Meeting

CANCEL INSURANCE CULTURE

A client this week was told his insurance is going to be cancelled soon due to the condition of the home. This was based on a drone inspection of the exterior, and this type of story has become increasingly common lately. Look, insurance companies need to mitigate risk, so there is nothing wrong with inspections, but the alarming part is how trigger-happy insurers seem to be about not renewing policies. Moreover, some consumers are reporting really trivial stuff that just seems like an excuse on the part of the insurer to drop the owner.

THE EFFECT ON THE HOUSING MARKET

Let’s make a quick list. How can rising insurance costs affect the housing market? A few things. The cost of insurance can affect where people choose to live, who needs to sell, what buyers are willing to pay for a house, the amount of housing supply in some markets, etc… This is an issue that has changed what is happening behind the scenes in real estate too. Yesterday, a loan officer told me that locking in insurance is basically right up there with locking in the rate. Read that again. These days, knowing a few good insurance brokers is a must since they can sometimes work magic to help consumers navigate the trenches.

ARE THE NEW STATS OLD AND MOLDY?

I’ve been checking religiously for new insurance stats from the CA Dept of Insurance, and they finally posted this week. Look, I wish we had stats through today, but the most recent numbers are through 2022. So much has happened over the past year, so these graphs only tell part of the story. And yes, “old and moldy” is a reference to the movie, Encino Man.

CALIFORNIA IS FEELING THE PAIN

There has been an increase in FAIR Plan policies throughout the state. In the past, it was areas prone to fire where residents were struggling to obtain traditional insurance, but we’re starting to see the FAIR Plan show up in other areas now. What is the FAIR Plan? See below.

BRO, WHAT IS THE FAIR PLAN? 

When people can’t get traditional insurance, they get what is called the California FAIR Plan (or “unfair plan” as locals call it). This is basically an association made up of all insurers, and it’s deemed last-resort type of insurance as it tends to be super expensive. For instance, I talked to a buyer in Placer County who was quoted $800 per month for insurance alone. It’s not always that much, but we’re not just talking about the cost of a few grande vanilla lattes.

NOT A SHOCKER TO SEE AN INCREASE

First, it’s no surprise to see an increases in FAIR Plan policies in most local counties. Yet, the trend is NOT the same everywhere. El Dorado, Nevada, and Placer are in the lead for top local areas with new and renewed FAIR Plan policies. Yuba County is a much smaller area, and we see a huge increase when zooming in on the graph. In contrast, counties like Sacramento, San Joaquin, and Yolo have been flat (through 2022 at least). Like I said last month, we’re starting to see insurance issues creep into non-fire areas, so there is a good chance we’re going to see an uptick in many counties ahead.

WHAT’S HAPPENING IN THE SACRAMENTO REGION?

Let’s geek out on some bar graphs and look at the wider region in the Sacramento area. Let me know if you need to see other nearby counties too. I’ll do what I can.

THE BAY AREA

I wanted to include Bay Area images also since I know I have readers in the Bay too. Just like Sacramento, the trend isn’t exactly the same everywhere. Check out that rise in Sonoma County especially. Yikes. Any thoughts? What are you seeing in the trenches of Bay Area counties right now?

I hope that was helpful. Thanks for being here.

Questions: What are you seeing in the market right now when it comes to insurance? What do you think these graphs will look like with 2023 data? What did I miss?

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The insurance crisis is affecting the housing market

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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?

UPCOMING SPEAKING GIGS:
4/25/24 HomeSmart iCare Realty
4/26/24 Prime Real Estate (private)
5/9/24 Empire Home Loans (register here)
5/15/24 KW Roseville Event
6/5/24 Chris Kennedy Team Event
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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That place where insurance & real estate collide

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Insurance can make a huge difference in a real estate market. We don’t often think much about this, but it’s something to watch in areas of California where we’re seeing insurers pull out of the market in light of disastrous fires. This is a big deal, so let’s talk about it.

Today I’m doing a Q&A with Eric Carlson who manages two Lyon Real Estate offices in Placerville and Cameron Park. I was talking with Eric about this recently and figured it would make for a helpful blog post. After all, this is a dynamic affecting real people right now. 

Ryan: What’s happening with insurance costs in El Dorado County? 

Eric: With all the recent wildfires in California over the past few years, and especially the Paradise and Malibu fires, insurance companies are rapidly pulling out of areas like El Dorado County with their fire insurance, or even their full coverage. In most cases they will still insure the structure and contents, but for the vast majority it’s really hard to get the fire insurance component. 

Ryan: El Dorado County is a 2+ hour drive from the Town of Paradise, but what happened there is affecting the local market?

Eric: Yes.

Ryan: Why does fire insurance even matter for real estate?

Eric: Lenders won’t close on a property without fire insurance. It’s something they tend to require.

Ryan: How are buyers getting insurance if big companies are backing out?

Eric: It’s now very common that buyers (and even some existing homeowners that got cancelled) have to go with the California Fair Plan for their fire insurance. This type of insurance is basically a last-resort policy available in California that is often used when someone has not been able to obtain insurance. Fun fact about the Fair Plan… It has already been announced they are raising their fee 10% to 20% on April 1st. 

Ryan: What type of rates have you seen your clients quoted lately?

Eric: For insurance companies that are still insuring, it’s super high. We’ve had some quotes come back for like $8,000, $14,000, and even $20,000 for the year. And that’s just for the fire insurance component… It doesn’t include all the other additional insurance for the structure, contents, etc. For now, it seems that a “typical” home, like a 3-ish bed, 2-ish bath home of 2,000 square feet or less, on 2-10 acres will pay about $4,000 per year for the California Fair Plan.

Ryan: What effect have you seen in the market due to these changes?

Eric: Additional insurance costs have scared away some buyers from buying in our rural area. Buyers have actually said that to my agents. They don’t want to pay an additional $300 to $400 per month for not-so-stellar fire insurance. Other buyers have put a hold on the rural property search/move until the insurance companies decide what the long-term plan is. As you know, added costs to a purchase can lessen desirability and/or affordability. And now there is that feeling of it being a “risky purchase” if a fire like the one in Paradise were to come through our part of El Dorado County. We actually had one seller credit the buyer about $25,000 so the buyer could get two years of insurance.

Ryan: Are you seeing this throughout El Dorado County?

Eric: We don’t see this happening in El Dorado Hills. But it starts in Cameron Park/Shingle Springs and carries up to Pollock Pines, and from Georgetown down to Somerset. Strangely, most of Grizzly Flats is not impacted. I’m told because of a great fire station there that can take care of the immediate town. But as some of our buyers are finding out, it applies to all homes in California on multiple acres with brush, slopes, dense foliage, trees, dry grass, etc. It’s not just our county; it’s all counties like us.

Ryan: Any closing advice for buyers right now?

Eric: Yes, I have three things: 1) Consult a few insurance agents to get a handful of quotes so you can compare rates; 2) If you can, try to use a local insurance agent in the county you’re buying in. Locals tend to be more in tune to what is going on with issues in your county and can better serve you; and 3) Talk to those insurance agents very early on in your home hunt. They can give you some general estimates while you’re searching (they’ll need a specific address to give an accurate quote), but as soon as you make an offer on a home and get into contract, immediately get specific quotes for insurance for that property. Don’t wait until your inspection contingency period is almost over. Both you and your lender will want to know those insurance costs of your future home as soon as possible.

Ryan: Thanks so much Eric. This was very helpful. You killed it.

QUICK TAKEAWAYS:

1) It’s NOT just about supply & demand: New laws, taxes, regulations, and changing business dynamics can affect prices and affordability in a market. It’s never just about supply and demand.

2) Different factors in different locations: The market isn’t the same everywhere, so it’s key to understand what factors are affecting a local area.

3) Uncertainty in the market: There is an element of uncertainty right now with changing insurance costs. This is definitely something that can constrain prices over time because it gets much more expensive to own property.

Market Update Video: In case it’s useful, here’s a market update video. It’s about ten minutes and I walk through some of the bigger trends right now with prices, sales volume, and momentum. My goal is to help explain what’s happening and give some different ways to look at the market. Enjoy.

Question: How have you seen insurance issues affect a market? Also, if you live in an area with increased costs, please share your story.

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