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Insurance Conditions Making A Comeback in 2020?

Photo Credit - Architectural Digest

Insurance conditions in an offer have fallen by the wayside in most cases over the last few years. Especially in an active market where the fewer conditions you have, the more attractive your offer is from the seller's perspective.

Not to worry, in specialty-type homes like century homes, rural, waterfront, even log homes, it’s still the norm…but for the average subdivision home it just hasn't seemed necessary anymore. But that’s changing!

Here’s a quick sample of some of the asks we’re seeing from insurance companies:

  • Criminal checks on the buyer (huh?!)
  • Buyer’s credit score
  • Asking agents to make declarations (at great liability to ourselves) on whether there is knob & tube wiring or galvanized plumbing in a home, when we are not electricians or plumbers, nor do we have x-ray vision to see behind the walls
  • Requesting home inspection reports & adding clauses or limitations to policies based on those reports
  • There is even a particular insurance company that will not insure a home where there is a certain breed of dog in residence, namely Pitbulls, Rottweilers or Dobermans.
f     The really scary part is if any of the information provided is incorrect, whether inadvertently or not, a future claim could be denied!

With so many questions & so many of them seemingly irrelevant, & it being much tougher to qualify in general than it used to be, it would seem that the insurance companies are getting as bad as the banks at squeezing people! Now apparently some of this is due to new ratings software, & it’s frustrating for the front-line insurance agents as well, but the onus is on you to figure this out because if you need a mortgage to purchase a home, you can’t get it funded without proof of insurance.

Whether you're talking life insurance, car insurance or home insurance (and I'm sure there's other types of insurance as well), it's all about risk assessment & risk management for the insurance companies. Realistically they are in the business of making money, not paying money out.

When it comes to home insurance they want to know every single detail they possibly can about the home so that they can assess the chances of you making an insurance claim. And with the new ratings software that I mentioned above, if any of the information is missing, you can't even get a quote! 

They will want to know things like age of the house, condition of & age of all the major components of the house, where is the nearest fire hydrant & fire station, what is the neighbourhood profile when it comes to crime & even other insurance claims in the area...basically the greater the risk of theft, storms or damage, the higher your premiums will be...or they may choose to not insure that home at all. They will even look at what YOUR personal history is when it comes to making insurance claims. Side note, professional appraisers & lenders will factor in neighbourhood profiles as well when determining the value of the home & establishing how much they are willing to lend on it!

They don't like knob & tube or aluminum wiring, cast iron plumbing, mold, oil tanks...and the list probably goes on, but those are some of the big ones off the top of my head! And it doesn't matter if an insurance company has insured a home before, for example, using the same insurance company that the seller used. Once a policy ends, a new policy evaluates a home starting from scratch using the insurance company's most current policies.

Condo owners in a Fort McMurray complex are struggling with a  551%  increase in their insurance premiums, which still leaves them under insured when it comes to replacement cost - it's an unprecedented situation...

Take a look at current events & I guess it shouldn't come as that much of a surprise that this issue is rearing its ugly head! 

There are some truly heartbreaking stories coming out of Alberta recently about the continued fall-out from the Fort McMurray fires in 2016. Sky-rocketing insurance premiums are causing people to lose their homes - read about it HERE

And of course the wildfires in Australia - Global News has a very insightful article tying what's happening there, with real estate here in Canada - read it HERE

Even right here in our own backyard we're seeing the effects of weather events & insurance...after the hard spring we had in 2019, I had a client trying to arrange insurance on a waterfront property & she had to wait as there was a hold on issuing new policies for waterfront because of all the flooding!

Bottom line…talk to your REALTOR® to see if it makes sense to include a condition of "arranging insurance satisfactory to you, the buyer, in your sole & absolute discretion".

The conditions you include in an offer are YOUR tools for risk management, use them wisely!

Until next time,

The Value of a View

What’s in a view? 

Well, depending on what type of property we’re talking about & whether it’s a good view or a “bad” view, whether it’s something that creates privacy, or the perception of added or decreased value, it could mean the difference of tens of thousands of dollars! Plus or MINUS! Or…you could pay a premium for a view that disappears over time or that you simply can’t recoup the cost of when you sell. Tricky Business!

Builders charge a premium for things like backing onto greenspace/treed or forested areas, storm water ponds & corner lots, just to name a few. Problem is, sometimes, like with corner lots for example, you can’t recoup the actual dollar value of the premium you paid to the builder for it. A corner lot in a subdivision home will give you extra windows & light on the one side (as opposed to a view of a brick wall from the house next door) but many people don’t like the extra traffic that comes along with siding onto a road. I once sold a property that was both on a corner lot & backed onto a popular neighbourhood park & it was a surprisingly tough sell! Yes there were no neighbours behind or next door, but buyers shied away from this property because of perceived noise & traffic.

How about a disappearing view? These are a heartbreaker! Especially if the builder promised one thing when you purchased & then they changed the “plan”…it’s not like they give you your money back when your view disappears. All of a sudden greenspace turns into a block of houses & you’re SOL! I feel so bad for the people on both Tooley Rd & Centerfield Dr in Courtice who backed onto greenspace for decades, but who now back onto a newly-built condo townhouse complex…that’s a real tough pill to swallow & has sadly stripped away some of their homes’ value.

Ravine lots & lots that have great privacy due to mature vegetation or landscaping, are both always in demand & will usually command a premium as well. How much of a premium? $30k or more here in the Durham region! I’ve sold a few & boy were those HOT properties! Recently an agent in Brighton (a good hour east of here in Northumberland County) had a ravine lot home sell for $150k more than a very similar home across the street that didn’t back onto the ravine…same age, same builder, same finishes, same selling timeframe…$150,000 difference…just let that settle in for a moment!

Examples of views that can be challenging? And by challenging I mean that a home will take longer to sell & will most likely sell for less than a comparable property with a different view:
  •      Hydro corridors
  •      Backing onto a main road
  •      Fronting onto a main road if the house is not well set back from the road
  •      Overlooking something less than desirable
  •      Backing onto something less than desirable

Now presumably someone who owns a house with a challenging view like one of the ones that I’ve just listed, likely paid a purchase price that took that challenge into consideration…not always, but more often than not, that’s the case. And so selling for a little less, when you paid a little less in the first place, is easier to come to terms with. For those with the disappearing view, or a view that that can be subjective as to whether it’s a good view or a bad view, unfortunately all you can do is be realistic & work with the hand that you’ve been dealt.

Privacy, & what one of my clients calls “elbow room” have become a luxury, at least here in the ‘burbs. Luxury items come with higher price tags & they don’t tend to go on sale. 

And one final thought, the perception of value BECOMES the value & perception can be  subjective...as I said at the start of this, it's tricky business!

Until next time,

Pot & Real Estate

If you were a fly on the wall in a room full of REALTORS® when the topic of marijuana & real estate came upthese are some of the things you would hear...

I had one, totally renovated, was raided 10 years back, full home inspection, air quality tests, even infrared imaging and not one A lender would provide a mortgage. Very pretty house, good quality reno. 
Even B lenders are declining mortgages on former grow ops, even if the property is completely re-mediated. I only know of one lender - other than private lenders- that will do a grow op at this point in time and they will put you through the ringer.
Legal is legal RIGHT? So tell that to my client who leased 2000 sq feet in an Industrial Mall to a legal grow op... RBC called his mortgage, only about a 40-50 % ltv but he had to come up with $600,000 to pay them out.

Soooooo, you can imagine my surprise when I read THIS article by another  REALTOR® suggesting it would be a good idea to steer clients towards purchasing former grow-ops because they can get a "deal" on them. But if you look at the real-life examples above,  it's an uphill battle. Sure, I've heard about the odd "unicorn" deal that actually goes through, but that would be the ultra ultimate in exceptions to the rule.

With the legalization of cannabis just a few short months away, it feels like there are still so many details to be ironed out, especially when it comes to understanding the potential fall-out on real estate.

When pot is involved, one of the biggest & most difficult issues to overcome is financing. Lenders are all about risk management, especially the "big 6" institutions who tend to take the position that they don't need to take on the less than desirable properties or mortgagees. They're looking for the cream of the crop & all the rest can look for alternative options...and don't let the door hit you on the way out!

When a live deal goes in front of a lender there are many things that they look at when deciding whether or not they're willing to lend on it - the buyers' financials, the house itself, the neighbourhood, their own internal policies - and if it's an insured mortgage then CMHC or Genworth have their own criteria that need to be met as well.

Stigma is the key concept to understand here.  A property can be "stigmatized" by any number of things....by being too close to something "undesirable", by having something undesirable happen in the house itself, like a violent act, or an illegal one, or even an environmental issue affecting the land that the house sits on.

I sold a property last year in an "emerging" neighbourhood in Central Oshawa. Great entry level home & it sold in multiple offers. The appraisal that the buyers' lender ordered had a LOT to say about the neighbourhood & treated it like a defect in the same way that they made note of some issues with the foundation. The lender felt that the neighbourhood was stigmatized & didn't want any part of it. Luckily for my seller clients, the buyers were able to get an "exception" from their lender & the financing went through & the house closed.

That was just a neighbourhood issue that needed an exception - lenders take a really hard line when it comes to former grow-op homes. These properties are stigmatized with a capital S! Re mediated or not, and even if it was rebuilt - yes you read that right, even if you tear the house down & rebuild it from the ground up - the stigma is attached to the address & can last forever when it comes to lending on that property. Also there is no Statute of Limitations on disclosure in Ontario so regardless of how many years have passed it always needs to be discussed if the property is being sold.

We need to deal with the bank rules on these places. I sold a "grow op" where the tenant was caught before any damages to home, all signed off on by municipality, required no remediation, but stigmatized, and banks wouldn't touch it.

The issue is, safe by who's guidelines? Until the big 6 agree it's also safe, home-growers might as well put money through the shredder. Same result. 

I think we can all understand the dangers to a home that has been used to grow pot in it. We hear about them on the news - police in hazmat suits bringing out hundreds or thousands of plants, electrical systems altered, mold, tons of damage to the interior etc. But what about the "little guy", the one who has a license to grow pot for medical purposes? They're getting caught up in this as well even though what they're doing is legal. Bottom line is, the lenders don't care.

I had a client who grew over 200 plants, did everything 100% by the book and when it came to selling he was SOL. Now, I haven't searched records, but if it hasn't happened yet, we will see a case where someone legally allowed to grow for medical purposes will challenge a bank on discrimination. An important side note for those worried about grow ops, you need to change the pre-printed clauses and remove "illegal" as for many growing or those who have grown in the past, it is 100% legal.

The banks take the stance that..Just because it is legal it doesn’t mean that I have to lend my money and accept a mortgage on it . Be careful advising your Clients , this is a new business with new legislation.

So there's the disconnect right there, in that last quote. Our various levels of government are famous now for not involving ALL the stake-holders in discussions around important legislation like this one. "Unintended Consequences" was the tagline for real estate in 2017 & perhaps will continue to be in 2018 as we see the impacts that stress-testing uninsured mortgages have on the real estate market & the faster than expected slow down of the economy. Until the big banks get involved in the discussion, look at changing their policies, that disconnect will continue & leave a lot of homeowners in big trouble.

More to come on this topic...stay tuned for Tenancy, Insurance & Valuation issues when it comes to Pot & Real Estate.

Have a fabulous day!