Insurance When Renovating A Distressed Property
A distressed property could be a home that is under foreclosure, a short sale or being sold by the lender. Because it’s common for these properties to be sold below market value, if you’re a savvy homebuyer you can find quite a deal, even if you’re purchasing in a hot real estate market. However, you still need to make sure you find the right insurance for the situation. When insuring a distressed home that may need some tender, loving care, a few concerns come into play.
Is the home vacant?
"The home is probably going to be vacant if there are an extreme amount of repairs that need to be done," says Carla Parenti, Personal Lines Department Manager. "It then becomes a specialized policy rather than just a straight homeowners insurance policy." For example, the insurance company may have more underwriting requirements, which could involve providing signed copies of the renovation contracts in place. “You will likely have to know who the general contractor is, provide their proof of insurance and the project's timeline. They’ll want to know that safety precautions are in place while the property is vacant and being worked on," says Parenti.
What renovations will be completed?
The ideal insurance during a renovation depends on the exact renovations being completed. Whether you’re planning on completely gutting your kitchen or simply swapping out some bathroom tile, certain questions need to be answered. "If you think 'I don’t like the way my bathroom looks anymore and I’m just going to replace the tile and do some aesthetic things,' that’s not so much of a concern to the insurance company," says Parenti. "The concern comes in if you’re adding square footage or taking a wall down.”
In addition, she recommends homeowners occupy their home during renovations because it is easier for the agent to discuss with the insurance underwriter. “There is always the concern for an insurance carrier, are you going to be occupying the home during the renovation?” says Parenti. “Because the insurance company really kind of winces on the idea of a home being vacant because then the risk of something happening increases. So if you’re able to stay in the home during a renovation, it’s definitely a lot easier for the agent to discuss with the insurance underwriter.”
If you are a conservative, first-time home buyer who is looking for only turnkey properties, it may be best to stay away from distressed properties. However, a distressed property can be quite the bargain if you do the proper research, find the right contractors to make the process go smoothly, are comfortable taking a risk, and - of course - have the correct insurance!
