Top 3 Insurance Facts for Residential Realtors in Santa Barbara & Montecito
While insurance isn’t considered by most to be a fast-paced industry, it certainly is today. The insurance market in Santa Barbara and Montecito is different today than it was even 6 months ago, and we predict we’ll see many more changes six months from now.
We know this can make it challenging for our realtor partners to best advise their clients so we’ve put together these three key talking points with those partners in mind. Our team is always available to provide a ballpark insurance estimate for a listing or serve as a thought partner for buyers considering multiple properties. We invite you to consider our local team as an extension of yours.a
1. Red Zone ≠ Higher Insurance
The “red zone” evacuation map doesn’t necessarily mean more expensive Home/Fire insurance. While there may be some overlap between the red zone and homes where insurance rates have increased after the Thomas Fire and debris flow, the red zone doesn’t determine insurance costs.
More important than the red zone established by local authorities is a property’s “Fire Score”. The Fire Score is determined by the Insurance Services Office and is based on location, slope of land, and proximity to brush. Insurers then determine which Fire Scores fit its risk tolerance while accounting for other factors like loss history, home accessibility, etc.
Example: Many areas near Bonnymede and other parts of Montecito that fall in the “red zone” can still be insured by a traditional carrier like Farmers.
2. All homes are “insurable” …but that doesn’t necessarily mean it’ll work for your buyer.
In our high-fire home market locally, the California FAIR Plan has become a more realistic option in recent months since FAIR Plan doubled coverage available to $3M. Meaning clients could have up to $3M available for coverage across all line items of a home insurance policy. (See Anatomy of a Home Insurance Policy for an overview of these line items.) Because of this, we’re seeing more and more clients choose to purchase a $8,000 policy through the FAIR Plan instead of a $40,000 policy through a non-admitted carrier.
If your client has a high-value home in a high fire area and the rebuilt amount is less than $3M, FAIR Plan could be a viable option. If the full $3M in coverage through the FAIR Plan is applied toward the rebuild amount (Dwelling) of the home, however, your client would need to be comfortable self-insuring for line items like personal property, other structures, debris removal, etc.
If your client has a high-value home in a high fire area and the rebuilt amount is greater than $3M, FAIR Plan is only really an option if your client is a cash buyer. Otherwise, a lender will likely require that the insurance cover the full rebuild amount of the property above the $3M offered by FAIR Plan.
Similarly, insurance coverage of the prior owner does not guarantee that a new buyer will be able to secure coverage through that same company. The previous owner could have been grandfathered into their current coverage or a buyer’s own insurance claims history may make them ineligible for the same company.
Example: A cash buyer can technically insure a home through FAIR Plan up to $3M and choose to self-insure anything above that amount. Therefore, the home can technically be considered ‘insurable’ when viewed in this way. A buyer who is financing the purchase and has a loan requirement of a certain level of insurance coverage may have challenges meeting this requirement if the FAIR Plan is the only available option and Dwelling is above $3M.
3. It can be easier to insure the construction of a brand-new home than a completed one.
When building a home or do an extensive remodel, clients will want to purchase a “course of construction” or “builder’s risk” policy. When issuing these types of policies, most insurers will just want to verify that the plot of land isn’t in an area currently experiencing a catastrophe or wildfire and that certain construction standards and procedures are followed. When issuing insurance for a completed home, however, past claims history and perceived fire risk play a much larger role in determining the eligibility and cost of insurance.
Example: If a buyer is purchasing a lot where a home was previously damaged or destroyed, it’ll likely be a lot easier to find coverage for the construction period since it’s not actively in a catastrophe zone. The fact that the previous owner filed an insurance claim for a total loss of their home in the debris flow though may make it more challenging to find home insurance options once the new house is built.
Questions about the insurability of a listing? Want the latest insurance info to properly represent your buyers? We invite you to consider our local team as an extension of yours. Call us at 805-984-3777 to give your clients the strategic advantage on all things insurance when listing or representing the buyers of a property.