Sellers should ‘mitigate’ home-buyers’ insurance concerns: Opinion
In an era when nearly every conceivable topic has become politicized, the issue of climate change has become one of the most combustible. Those who believe climate change is a vital global threat with real consequences typically point to data-driven global warming and sea level rise trends, while those who do not express skepticism or doubt about the extent, nature, or outright existence of climate change as a threat.
Regardless of your position or mine, one thing is clear to this Miami real estate agent: Home insurance companies are taking climate change very seriously — and are increasing their rates and premiums accordingly. In the face of historically low interest rates on home loans (and despite our region having avoided a major hurricane for several years), concern over rising insurance costs is a major complaint of prospective buyers and a serious obstacle to these homes selling quickly at what ought to be record-high prices.
The typical case is as follows: A pair of sellers will have a 10- to 15-year-old insurance policy that made sense for them the day it was purchased, but over time, it has become dated. The sellers become creatures of habit and convenience, and as their needs do not change that much, they keep coverage “as is” to avoid paying more at renewal time.
Again, Miami having been fortunate about major hurricanes over the past decade has probably contributed to this lethargy, which leads to the sellers’ policy falling short of meeting current insurance requirements. The sellers are generally unaware of what the buyers of their home will need to pay for insurance because the sellers’ own situation has little to do with what the buyers are facing.
▪ Buyers beware: Sellers should care: For example, in years past, a homeowner could ensure the value of their home minus the value of the lot upon which it sits. A client of mine recently learned this when he purchased a Pinecrest home for $1.6 million. He figured that the acre lot upon which the home sat was worth at least $1 million, so he could ensure the property somewhere between $600,000 and $800,000.
However, his insurance company would not cover for less than the replacement cost of the home, which they determined to be $1.5 million, even more than the $1 million amount of his mortgage. The house had recent renovations and all impact glass windows and doors, but since all were not marked (or etched) with details, the buyer had to secure copies of the permits to verify that they were compliant with current hurricane mitigation codes. He also had to verify that the skylights in the house met current wind mitigation requirements.
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After checking with four different insurance companies, he procured coverage at the best cost available and in compliance with the highest discounted wind mitigation requirement. He pays $15,000 annually for just his wind insurance, which does not even cover policies for fire, theft, flood, etc. Without meeting these mitigation requirements, certain insurance companies would not cover that property for windstorm at all, and even if they did, the annual cost would have risen into the mid-$20,000s.
The good news is that these problems are eminently obvious, and sellers can take action to present their listings under the best possible conditions, guaranteeing that their buyers will enjoy the lowest prices available for insurance. Here are steps that sellers should consider to get started:
▪ Max out the mitigation: Mitigation is the process of adding or improving features to a home that help it to withstand or increase resistance to high winds, which can be caused by a major storm or hurricane. These can come in the form of doors, windows, storm shutters, panels, roofing materials, insulation and coverings that withstand wind pressure, water intrusion, and projectiles; attachments that anchor and prevent roofs from being blown off; and adjustments to roof and building shapes that make the home more resistant to high winds.
While these improvements may be costly in the short run, the long-term benefits are extensive. First and most important, they will better protect the home and family in case of a major storm. But they will also reduce insurance premiums (after having the improvements certified by a mitigation inspector, earning mitigation “credits” to the policy), and returning to our original point, ease concerns of insurance-focused buyers. Sellers will likely find pricing for mitigation improvements to much more agreeable this time of year (in winter), before demand increases with the approach of hurricane season.
▪ Glass half-full: Of all the aforementioned mitigation techniques, the addition of impact glass windows to a home may be the most expensive — but also the most cost-effective, in my opinion. The first question I hear from buyers after entering a listing is, “Are the windows and doors all impact-resistant?” Windows are the most vulnerable points of a home in terms of wind, water, or projectile intrusions, and broken glass is yet another threat. In addition, impact glass shuts out noise and heat better than standard glass windows, thereby keeping the house quiet and reducing electricity costs. When prioritizing mitigation strategies, I would suggest putting impact glass at the top of the list.
▪ Shutter to think: If impact glass windows are beyond a seller’s budget, accordion shutters are the next best mitigation solution. While still pricey as a home improvement, “accordions” are an excellent and convenient way to protect the home, and a huge step up in convenience for those of us who remember using individual steel panels to defend our windows.
In fact, even for sellers who opt to use impact glass on their windows, I would advise installing accordion shutters on front and interior garage doors for added protection (and mitigation credits.)
I find Miami home buyers to be increasingly sophisticated with each passing year, and while they will always put a priority on location and square footage, home insurance costs are becoming a much bigger concern. Savvy sellers can distinguish their listings by following the suggestions here, and by highlighting and demonstrating the mitigations that will protect their prospective buyers physically — and financially.
Master Broker Hazel Goldman is an agent with RE/MAX Advance Realty. She can be reached at (305) 665-7383 and/or hazel@goldmanresidential.com.