Tom Kelly: Empty house on the market may cost more to insure

Homebuyers are finding tougher guidelines and higher premiums from insurance carriers, and there certainly aren’t any bargains for sellers who need to move – or would simply like a change of scenery.

In a recent case, owners decided to sell a three-bedroom, three-bath primary residence and move into a nearby rental condo they owned and better fit their needs. The primary residence, on a gorgeous acre with wonderful landscaping and a couple of ponds, demanded more time and maintenance than the owners had to give.

“We moved out, left it vacant and went on a trip,” said Pat Hanrahan, who admits he now wants to play golf more than he wants to garden. “We returned and were thinking about getting the house ready to sell and found out how much the insurance had gone up.”

The Hanrahans had an excellent relationship with their insurance carrier and had a flawless history with the two homes, two cars and a boat. However, because the primary residence was now unoccupied, vacant and headed for sale, the insurance premium had jumped to nearly eight times the normal rate.

“The premium for the previous year was $528 and the least-expensive insurance that we could get once it was vacant was $4,000 a year,” Pat said. “I couldn’t believe it, but a friend told me he had the same experience with a home in his family.”

Insurance companies simply do not want to deal with unoccupied, vacant and for-sale homes. Their history charts show these places stand a much greater risk of vandalism than an occupied home and problems occur that are created by neglect. A slow leak in a cold, unoccupied home has a greater chance of resulting in burst pipes and subsequent dry rot than in a home that’s lived in every day.

So, what’s the insurance grace period when selling a home? If an employee is forced to relocate with little notice, put his wife, family and belongings in a moving van and go, how long will the vacant home be covered? Many insurance companies will give 60 days for a transitional “vacant” period as long as the premiums are paid. (Some states require that insurance carriers give 45 days notice when coverage is canceled midterm. A 30-day advance is generally given for renewal notices, but companies often allow 60 days to make up for mail time and weekends.)

According to a cursory survey of insurance agents, coverage on homes, apartments and condominiums has not returned significant profits to the insurance industry for the past 20 years. Claims that have been paid for earthquake, hurricanes, flood and fires in the western United States really have taken their toll.

Some traditional, major carriers have even adopted a moratorium on “substandard” or higher risk insurance. Unoccupied, vacant and for-sale homes have slid into this category. Special niche companies that continue to write substandard policies often impose a monthly quota on the number of cases they will consider.

Why are insurance premiums so high? Insurance agents and carriers point to the numbers –claims filed involving mold, lead-based paint, asbestos, radon and urea formaldehyde are up significantly. While all of these environmental hazards have caused terrible losses, other industry costs – all passed on to the consumer – involve cases compounded by expensive legal proceedings where neither side receives any real benefit.

For example, a recent case involved a renter who died in a house fire. The fire marshal determined the cause of the fire was the renter’s smoking in bed. The renter’s family filed suit against the seller’s $500,000 liability policy, claiming the smoke alarms were not working properly.

The Hanrahans had heard all the reasons for skyrocketing coverages, but they still couldn’t believe the cost to insure the home they still wanted to sell.

“I even thought of moving some furniture back in and bringing in my sleeping bag,” Hanrahan said. “But we decided to get a renter and give him a greatly reduced price. He’ll have his stuff in there, we’ll do some painting and then make sure the real estate agents have access to show it when it’s ready to go.”

The Hanrahans said the renters won’t have to pay market rent, and they’ll save a ton on the insurance premiums because it’s occupied.