Frequent severe weather events and disasters — including floods, tornados, and wildfires —means that some locations now have an increased risk profile according to insurers. This has led many insurance carriers to stop offering or renewing insurance policies in these areas.
For real estate licensees, this creates a more challenging environment to sell a property. Selling homes that cannot be insured obviously affects the buyers and their interests. It also affects potential financing and the overall marketability of the property.
In this blog, we look at the responsibilities of licensees, including your disclosure obligations, and how licensees can handle concerns from potential buyers. We’re also sharing our best strategies for risk management so you can reduce the possibility of lawsuits in your real estate business.
Potential Issues with Home Insurance
As insurance companies adjust to the increasing risks in some locations, some regions are now classified as too high-risk to insure. This leaves many properties without coverage, making them harder to sell.
Homes without insurance often discourage buyers who prefer properties with fewer obstacles. Financing becomes more complicated, as most lenders will require active insurance policies before approving loans.
Licensees may be faced with sellers who don’t fully understand how “uninsureability” impacts the marketing of the property, adding additional responsibility for the licensee who may need to spend time educating and managing the expectations of the seller.
Understanding Your Disclosure Obligations
Many states require agents to disclose all relevant facts that might influence a buyer’s decision. Anything that could influence a buyer’s decision to purchase, such as defects, for example, need to be disclosed.
Insurability (or lack thereof) is one of those factors that could affect a purchaser’s decision. Therefore, as a real estate licensee, you have a responsibility to be upfront about a listing that cannot be insured. Of course, that’s not to say the property will never be able to be insured. So a licensee isn’t saying, “This property can never be insured.” However, if the seller has been unable to obtain insurance for the property, this should be disclosed.
Failure to fulfill your disclosure obligations could result in legal challenges. It can also do a lot of harm to your well-earned reputation.
Managing Buyer Concerns
Buyers often approach uninsurable homes with hesitation. So it’s essential for agents to provide the facts while staying neutral. Highlight the property’s appeal, such as unique design features, potential for improvement, or liveability instead.
It’s also important not to offer guarantees about future coverage or downplay the challenges. Encourage buyers to do their own due diligence and consult qualified insurers for advice. As a real estate licensee, you cannot give buyers advice on insurance or options best suited to their needs, but an insurer can. This supports buyers to make informed decisions, while also avoiding an overstepping of your professional boundaries.
Risk Management Tips for Licensees
- Discuss Insurance Early with Sellers
Bring up insurability issues early with sellers so they understand the potential impact. Clarify how the absence of coverage may affect pricing and marketability. Help them focus on the property’s strengths to attract buyers despite the challenges. - Offer Practical Solutions
Sellers may have opportunities to address insurance-related issues. This can include home improvements designed to reduce the risks (for example, fire safety systems, the installation of higher-rated materials, etc). There may also be some specialist insurers that deal with these types of properties and the challenges they present. If these options aren’t feasible, adjusting the price to reflect the situation may help make the property more competitive. - Pay Attention to Your Records
Keep a log of all discussions and agreements regarding the property’s insurance status. This ensures you have a clear history of your interactions with both buyers and sellers. Good record-keeping and document management will help you to be able to answer any questions that arise or defend yourself in a lawsuit. - Stay Within Your Expertise
Avoid making recommendations or assurances about insurance unless you’re qualified to do so. Instead, suggest clients contact qualified advisors and insurance professionals who can provide reliable and detailed guidance. - Know Your Local and State Requirements
Ensure you are familiar with the laws in your state related to disclosures. Licensees must keep informed of any changing requirements, so you can continue to fulfill yourobligations. - Ensure You Have Adequate Protection
Real Estate Errors & Omissions (E&O) insurance can protect you and your business from disputes that may arise in transactions involving uninsurable properties. Having appropriate coverage is a must to ensure you have support if you end up facing a lawsuit.
Protect Your Real Estate Business
Selling homes without insurance needs a strong strategy and clear communication. Addressing the challenges early, meeting legal requirements, and keeping organized records can help you manage these transactions effectively. But there is no substitute for real estate errors and omissions insurance.
Contact the friendly team at CRES to discuss your real estate E&O insurance needs. We can tailor a policy to suit the specific risks you face in real estate every day, including the risks associated with selling uninsured properties.
In addition to superior protection at an exceptional value, CRES members also have access to a team of qualified real estate attorneys to help you prevent claims before they happen. Expert advice is included, so all your legal questions can be answered and you can reduce risks in your real estate business.
