Buying a Home in DC

Think living in the DC area means you’re safe from natural disasters? No hurricanes, no earthquakes, no floods, no tornados, no wildfires. What could possibly go wrong? Well, the homeowner’s insurance companies would like a word. Even in our seemingly ‘safe’ corner of the country, getting homeowner’s insurance has become surprisingly expensive. Claims across the U.S. are skyrocketing, and clients of mine recently found out how a house might be flagged, even if you’ve never filed a property claim in your life. So how do you protect yourself, your home, and your wallet? Stick around, because the #1 mistake I see buyers make is at the end—and fixing it isn’t always possible after the fact.

It used to be that when you needed insurance, you called a few companies and went with the one that was the cheapest. Now, it’s not that easy. All the natural disasters, plus things like the Surfside Condo Collapse have rewritten how the insurance industry functions.

Who Needs Homeowner’s Insurance?

If you own a home, you need homeowner’s insurance. If you have a mortgage, you’re required to carry insurance coverage. Even if you don’t have a mortgage, you still want to have homeowner’s insurance. With houses, insurance policies cover the structure and the contents. In condos, your policy will just cover the contents of the home. The condo association will maintain a master insurance policy to cover the building should it sustain damage. 

DC Area Sales contracts used to stipulate that insurance needed to be in place seven days before closing. Several years ago, our contracts changed and now require the buyer to secure homeowner’s insurance within seven days after contract ratification (our term for contract acceptance.) Why the change? The number of claims filed and paid out over the past few years have risen astronomically and buyers were finding out that some homes were uninsurable. 

Why Are Some Homes Uninsurable?

If we don’t live in a high-risk area, how does a home become uninsurable? Rates can spike based on zip code, higher claims in the area, and past owner claims.

Insurance Hot Buttons

The most popular reason insurance companies balk at insuring a home is the age of the roof. It’s not only older roofs that can cause you an insurance headache. Outdated electrical panels are another item, proximity to water – even tiny streams, or historic properties with costly replacement values are other things to beware of.

My Clients Found out the Hard Way

I have clients who are currently under contract to buy a home. This is their second accepted offer on the same home. They walked away the first time. On their first offer, the home had multiple offers, so my clients opted to do the inspection but not negotiate for repairs. We knew the home needed a new roof from just looking at the condition, but the inspection confirmed the age of the roof – 24 years. Well past its serviceable life. But this was not the reason they voided the first offer.

During the inspection, it was also revealed that heat/air vents were not present in every room in the home. Two bedrooms were served their heat and air conditioning via a vent in the hallway bath. The sellers said they never noticed this. They owned the house for just over four years, but it seemed strange they allegedly never noticed this. It was like a sauna in the bathroom, yet the bedrooms were noticeably cooler. Sellers didn’t want to add vents, and my clients decided to void their offer.

After a few weeks with the home being back to the market, my clients wanted to revisit the idea of writing another offer. I found out from the listing agent that the vents were installed properly, so my clients reinstated their prior offer.

If I thought that a home without vents was the strangest thing to happen with this house, I was wrong. While my clients were going through the underwriting process, they attempted to secure their homeowner’s insurance policy as required by the lender and the contract. As I always recommend, they started with their auto-insurance company. 

Due to the age of the roof, their current company imposed a temporary exclusion. They would cover the house, but the coverage won’t kick in until the roof is replaced. The buyers didn’t love the idea of not having coverage on the entire home for the first two weeks of ownership. I had hoped that they could get a policy with a rider to explain that roof coverage wouldn’t begin until proof of replacement was provided. That wasn’t an option. The insurance company said they weren’t covering anything in the home. 

My clients asked me about replacing the roof being prior to closing, but this is something I highly don’t recommend. What if the sale doesn’t go through? You just gifted these people a new roof.

My clients decided to check with other companies.

CLUE Report Roller Coaster Ride

Here’s where the story gets crazy. One company said they would insure them, but as I’m sure you guessed, it was for twice the price. Another company pulled the CLUE Report, the Comprehensive Loss Underwriting Exchange. It’s like a credit report, except it outlines the claims made on a property. Hold on to your hats people. The CLUE report for this property had five separate claims made on the home in the past four years.

I about fell out of my chair. We got a copy of the report. The first two claims the homeowners made early in their ownership time were paid out – one was $2000 and the other was $31,000. There was very little info on the report as to what the claims were regarding. But then the three subsequent claims were all denied. Remember the missing vents? These sellers actually called their homeowner’s insurance company about them. That claim was DENIED.

These sellers are ridiculous. Your homeowner’s insurance policy is there in the event you need it, but it’s not an ATM machine. I’ve owned property for over 25 years. Do you know how many times I’ve called my homeowner’s insurance company? Zero times. I want them to help me when I really need it, not when our dishwasher explodes. Mop up the water and call a plumber but do not call the insurance company.

Ultimately my clients went with the policy with the 100% markup. They will revisit it once the roof is replaced.

Homeowner’s Insurance Impacts Sellers Too

Another client story, but this time it’s seller clients. They have moved out of their property. They planned to do a full renovation prior to selling to capitalize on their investment. Their current insurance company went by the property, saw that the ground floor windows had iron bars on them (common in the city) and said they won’t insure them any longer. Policy dropped. My seller clients have been trying to obtain insurance but no one will touch this – the property is being renovated and the sellers don’t live there. There’s too much liability in that equation for an insurer to take on. 

Fortunately, they own the property outright, with no mortgage. But unfortunately, they have no insurance. We’re racing against time to get this property renovated and sold but we all know this is a huge issue for the seller from a liability standpoint. If they did have a mortgage, they could find themselves having to pay for insurance of “last resort,” which is a policy the mortgage company finds and buys for you. But you get to pay the exorbitant price for it.

Renter’s Policies – Two Important Things to Know

If you haven’t owned a home yet, don’t think that none of this affects you. When you rent a home or condo, the landlord will likely require that you maintain property insurance. This is a policy to cover the contents of your home, i.e. your “stuff.” If there’s a flood or damage to the home, of course the owner has to handle that. But if your personal items are damaged too, the landlord is not responsible for replacing your things. This is where the renter’s policy comes in. There are two things you must know about these policies. 

First, renter’s policies are an excellent value. They are typically very inexpensive. They usually cost a few hundred dollars a year and the payouts can be unreal. If you rent a home and you are displaced for some reason, let’s say there’s a flood or a gas leak, you may still be required to pay rent. But you would not have a place to live. This is where your rental policy kicks in – it provides you a place to stay. And the per diem is usually much higher than you need. People have reported having rents around $2500 but being granted $5000 a month from their insurance policy to replace their personal items and pay for temporary housing. You can go from a one bedroom basement apartment to the Ritz or the Four Seasons.

Second, if you do file a claim on a renter’s policy, it can and will follow you down the road. Think: Permanent Record. It may make it harder to get insurance when you do become a homeowner, or it could cost you more. Like any insurance, you only want to use it when it’s an absolute necessity.

The Big Mistake Buyers Make

Do not just pick up the phone and call any old insurance company. A great insurance broker is as important as a great Realtor, lender or inspector. You can’t short-cut this. Find someone local and familiar with the market area. We have a local contact in DC who we refer everyone to, and everyone is always thrilled with the results. (No we don’t get kickbacks.) Bryan has been able to save so many clients a ton of money. You will want to provide all your insurance needs and current policies because this is how you get a great bundle discount. Make sure to review your coverage each year also, because your needs may change based on life changes.