At our weekly meeting, our manager brought up a situation that was affecting a buyer and the purchase of a home. When it came time for him to buy insurance for the house that he would be purchasing, he couldn’t find a company that would give him coverage. Down to the wire, he had 24 hours left and the seller was threatening to “bring him down” if the sale didn’t go through as planned.
For years now, helping people buy a home is one of my favourite things to do. I love helping them fulfill their dream. There are a lot of details and legal paperwork involved, including making sure that the purchaser has the house covered by insurance for the act of sale. The notary will not pass the sale otherwise because it’s one of the conditions the banks have in their mortgage agreement.
When I first started real estate, it was never an issue to get your house covered and it usually took about 20 minutes on the phone answering questions. Over the years, insurance companies have installed new procedures, such as sending over an evaluator to make sure that there aren’t any aspects of the house that could cause them problems, such as cracked foundations or faulty brickwork which would allow water penetration or missing railings. Anything potential that would be hazardous to the house and a human mishap liability. Normally if there would be “issues” to repair, you would be given a list and an expiring date to have the job completed. Many companies are now asking for the actual inspection report.
The story of the buyer who was struggling to get insurance finally ended up with him getting it in the nick of time. He was lucky. There are more and more stories out there about people not getting coverage and as well as the coverage being so incredibly high, that if they knew beforehand, they would have never bought.
Different strategies on how to protect yourself:
As soon as your offer is accepted, start looking for insurance right away. This will give you enough time to find the right company and that you are comfortably insured before the signing date.
If the building has a lot of issues, you could make the promise to purchase conditional upon obtaining insurance.
If obtaining insurance is conditional, it will also give you a good idea of the cost involved. However, this method is extreme and may make a seller nervous. A better strategy might be to call before you put in the offer.
In the case of our story, it was the house that couldn’t be covered, however there are times where a buyer might have bad history with an insurance company and may have a black spot on their file. Insurance companies share their information amongst each other. Insurance companies might also be wary if you don’t have history with a company. I’ve seen a case where a non-resident was trying to buy a triplex and was refused insurance for the sole reason of not having history and living out of the country.
Many banks have insurance divisions, so if you are planning on buying a property with issues, you might want to get your mortgage through one of these institutions, who might be more flexible.
If you have your own insurance story to tell, I would love to hear from you.