There is a generally overlooked trend in the scrutiny of home buyers and sellers, and it can keep you from buying a home. It may also make it more difficult to sell as well. We’re all aware of the need for good credit and a down payment, but the insurance industry has introduced another risk variable into the home buying process. It’s only logical, as insurers are all about risk assessment.
As most of us are in need of a mortgage to buy a home, and since the lender will want to be certain that the home is fully insured to cover their investment, homeowners insurance is a must. Real estate purchase contracts have evolved to include a contingency that the buyer gets approval for a policy within a specified period of time or the contract can be terminated. As more insurance policies have been denied in recent years, some even due to poor credit scores, we should be concerned about the availability of insurance on this major purchase.
For many years, insurance companies have been sharing homeowner claims information in a vast database. This allows the insurer you contact for a policy on the home you’re set to purchase to review the claims history for that home before offering to insure it. If there is negative information, such as a claim and reimbursement for major water damage, it could mean trouble. With mold problems growing and the high dollar amounts for mold claims, many insurers no longer cover mold. Major water damage is a factor, so previous claims could result in a refusal of a policy. Even if a policy is issued, it could mean a significant increase in your premium.
Smart buyers are taking advantage of a free resource to identify problems. It’s the C.L.U.E. (Comprehensive Loss Underwriting Exchange) Report. This report is available at no charge from the information provider LexisNexis at their website. The report provides the previous five year history claims against policies on an address. The date of any claims, the insurer, the nature of the claim, and the disposition are in the report, as well as any amounts paid by the insurance company.
The only hitch is that a buyer can’t request it for privacy reasons. It must be requested by the property owner. As the single largest purchase most of us will make in our lifetimes is a home, we should take advantage of every tool available to reduce potential losses and their associated costs. Have your real estate professional place a contingency in the purchase offer that the seller provide a C.L.U.E. report acceptable to the buyer(s).
Home sellers should be interested in their home’s C.L.U.E. Report as well. There is a procedure to appeal or dispute information on the report and the owner can also have their explanation of a claim added to the report. The best thing for a seller to do is to request their report when they list the home for sale. If there is a problem, it can be addressed before a buyer makes an offer. If it’s a clean report, it becomes a document the seller can offer voluntarily as part of the disclosure package.
Have fun when you interview real estate agents by asking them if they have a C.L.U.E. If they don’t, you can help them improve their game.
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