Often times when I sit down with a first time home buyer we go over the expenses they may not have thought about, taxes and insurance to name two. Insurance is tricky, often times a buyer will ask me what I think the insurance will cost them. We all know that it varies from location to location, home to home and person to person, but what impact will this have on the buyer?
Sometimes the impact is more than we would expect, I had two different buyers, that purchased very similar properties in the same area. These were both manufactured homes on 5 acres both were triple wides (2200 sq ft) and both had a very nice shop and other out buildings.
Buyer A – paid cash for his property and paid $225,000 – he uses the property as a second home. He has excellent credit – our first quote was for $1400 a year – we made another call to a local company and were able to insure the property for $465 a year.
Buyer B – had 100% financing – paid $220,000 – lives in the home – has mediocure credit – our first quote was $2200 a year – we called the local company and was able to insure him for $775 a year.
Our first quotes were with a national company and these properties are in what is called a class 6 fire area. The fire department is 12 to 15 miles away. Neither of these homes have had any prior claims, we did receive a C.L.U.E. report on each property. They are both the same distance from the fire department, it all came down to the buyer and their credit.
Last year I had 2 sales that failed on the closing table because during the transaction fire protection had decreased and no one would underwrite the policy.
When you represent a buyer knowing the impact of this could be vital, many times a buyer does not get an insurance binder until the end of a transaction, I always encourage my buyers to start getting quotes the day we have acceptance.
After reading Laurie Manny’s article Long Beach Condo Fire – Are You Thinking About Buying a Long Beach Condo? I got to thinking about the buyers that are trying to obtain the American Dream and may not know the impact of insurance and their payment. My guess is that the condo with a sprinkler system vs. a condo without is much easier and affordable to insure, not to mention sleep better at night.