As recently as five years ago, homeowners insurance was never on the minds of most home buyers and real estate agents, but that is changing as insurance premiums soar rapidly.
“Before, insurance was like an afterthought. It was just checking a box,” said San Diego-based Paul Scallone. compass needle agent and owner Dignified insurance service. “We currently believe the process will take two to three business days, but buyers may not like the numbers they get back.”
Some buyers are wary of the property they choose because the insurance premiums are shockingly high.
“I recently read a story about an agent in Florida who said one in four closed deals failed because of insurance premiums,” said the association's director of corporate communications. , Mark Friedlander said. Insurance Information Association. “This shows how much impact insurance costs have on the real estate market.”
And Florida, where insurance premium hikes are frequently in the news, is not the only state where this is happening. In Texas, Vice President and Co-Owner Danny Thompson; Goosehead Insurance Sexton Thompson Agencysaid he has seen buyers in the Lone Star State walk away from deals after learning how much it would cost to insure the property they wanted.
“The rise in interest rates is dramatic,” Thompson said. keller williams Been an agent for 17 years. “Some clients say they don’t want to deal with the premium costs of a particular property and will look for another property.”
analysis by S&P Global We found that homeowners insurance rates increased by an average of 11.3% nationwide in 2023. Cos Farmers Insurance Group.and Liberty Mutual Holding Co., Ltd.. The highest increases in the calculated weighted average rates were recorded at 19.4% and 17.2%, respectively.
Looking at each state, Thompson's home state of Texas recorded the highest rate of increase in 2023 at 23.3%, followed by Arizona at 21.8% and Utah at 20.3%.
Over the past five years, insurance premiums have increased by an average of nearly 34%, according to S&P Global data. progressive It recorded the highest cumulative percentage change since 2018, at 55.3%. Texas again takes dubious top honors, with the highest cumulative change at 59.9%, followed by Colorado (57.9%) and Arizona (52.9%).
These rate increases came after the Insurance Information Institute estimated that 2023 was the worst year for underwriting losses by home insurers since 2011. These losses were due to multiple factors, including rebuilding costs due to inflation, which the institute said increased by 55% from 2019 to 2019. 2022.
The intensity and scale of natural disasters are also increasing. According to data from National Oceanic and Atmospheric Administration According to (NOAA), in the 1980s the United States experienced approximately three disasters per year, resulting in at least $1 billion in damage. But over the past three years, disasters have averaged $22 billion a year, and NOAA only expects that number to increase due to the effects of climate change.
“One of the biggest issues is storm losses and catastrophic losses,” Friedlander said. “Last year alone, the United States had 28 billion-dollar weather events, the highest ever for a single year, according to NOAA data.”
In California alone, research and consulting companies milliman The 2017 and 2018 wildfires wiped out more than double the previous 25 years' worth of underwriting profits in the state's insurance market, it found.
For insurance companies, this means that even if interest rates rise, it still won't be enough to cover all of the losses. Because of this, the Insurance Information Institute reports that consumers should expect a national average price increase of at least 10% to 13% in 2024.
For real estate agents, this means they need to discuss insurance options with their buyer clients much earlier than before.
“When I was at Keller Williams, Gary Keller always said there were 191 things a buyer's agent had to do to close something, but insurance was never one of them. '' Thompson said. “But just because you have insurance and you need to get a claim report, that doesn't matter, because a previous insurance claim may have caused the carrier to remove the property. Because it has a huge impact on whether we cover it or charge an additional fee to cover it.”
“Our real estate agent partners involve us early in the transaction to obtain insurance quotes as early as possible in the transaction. It’s been really helpful because now they can make decisions.”They want to move forward. ”
In Virginia Beach, Virginia, where hurricane damage is likely, Matthew Salway, a local agent, says: Iron Valley Real Estate Hampton Roads | Virginia Beach He said he tries to discuss the cost of flood insurance with buyers.
“If you're buying a home in a flood zone, the cost of homeowners insurance almost doubles, so this is usually a significant factor,” Salway says.
He said no one has ever broken a contract because of this, but he feels it's important for buyers to understand exactly what they're getting into.
On nearby Chincoteague Island, Virginia, long & foster real estate Agent Megan O. Clarkson also said she begins discussing homeowner's insurance costs with her clients early in the transaction. Many carriers in her area have begun refusing to insure properties if they think the roof is too old.
“There have been several instances where one insurance company didn’t insure the house, and another insurance company insured it, and the premium was $5,000 a year. But if you had a new roof; We ended up renegotiating with the seller for a new roof because it costs $2,800 a year,” Clarkson explained.
She also began discussing these details with prospective sellers during listing presentations.
“Nobody would find out the day before closing that the buyer can't insure it because the roof is 20 years old,” Clarkson said.
On the insurance side, Thompson believes this situation is a prime example of why homeowners insurance needs to be a big part of the homebuying education process.
“Before, real estate agents didn't really need us, but now more than ever they actually need a reliable insurance agent,” Thompson said.
