Buying a home? Realize homeowners insurance is no longer an afterthought

When it comes to buying a house, the elephant in the room is not the price. It’s not the mortgage rates. It’s not even the property tax. It’s the insurance.

You know the cost of the house and your loan rate, so you’ll know what you can expect to pay every month, based on how much you eventually borrow. You’ll even be able to get a good handle on your property taxes, based on what the seller is paying now or, if you are buying a new construction, what the builder estimates.

But you won’t have a clue about what you will pay for homeowners insurance — and possibly flood insurance — until you actively search for coverage. Unfortunately, too many buyers leave that until the last minute, only to find that the cost is so much that they can’t afford the total monthly payments, or PITI.

According to a Real Estate Witch study, the typical homeowners insurance policy is $1,516, or $126 a month. Consequently, insurance is no longer a minor detail: It’s the wild card. And it’s become a major hurdle.

Anthony Friedman of Northrop Realty in Ellicott City, Maryland, worked with a seller who wanted to move to Florida but was so “shocked” by the cost of insurance in the Sunshine State that he took his Maryland house off the market. And Steven Moreira of RealSource Properties in Longwood, Florida, says he knows of one broker who lost six deals that were under contract last year because of insurance.

Florida may be the epicenter of the problem — it’s said to be the largest hurricane-prone place in the world — but insurance costs are also causing trouble in California and Colorado. And the issue is popping up in other places, too.

That’s why real estate agents are being advised by their trade organization to be upfront with clients and suggest they start the hunt for coverage early, no later than midway through the loan approval process. Some agents are going further, though, by building relationships with insurers in their areas who can provide coverage for their clients.

It’s always best to shop the market on your own, but if you are unable to shop around or can’t find a better price, your agent’s person may be your only choice. Realty company Long & Foster, a large mid-Atlantic region brokerage, has several affiliates, including an insurance company. Coverage is offered when a contract is inked.

“Insurance is offered right upfront so people don’t get stuck,” says Dan Jay, who works in the company’s lending division. Many homebuilders are aligning themselves with insurance companies or brokers, too. Some are “embedding” insurance within their purchase agreement process, so their buyers are offered a no-obligation quote and are all but forced to deal with the issue head-on.

Again, buyers are free to go elsewhere if they desire. But it’s a service many buyers appreciate, says Tom Kriby, vice president of client development and partnerships for the Westwood Insurance Agency in California. Kriby says half the buyers who obtain coverage through Westwood accept the quote they receive when they sign a purchase agreement, and the other half chose the company after shopping the market.

Other builders, meanwhile, are creating their own inhouse insurance companies. Perhaps prescient, Taylor Morrison, one the country’s largest with 11,500 houses built last year across 11 states, started its own insurance subsidiary in 2019 to provide competitive quotes — with discounts other agencies cannot offer — within 48 hours of signing a contract.

“The opportunity to offer an additional benefit to complement the homebuying experience through our financial services — from mortgage, title and closing services and now insurance — allows our customers to enjoy the quality and convenience of one-stop shopping,” the builder said at the time.

But taking the weight of searching for affordable coverage off the buyer’s plate gives builders a lift, too. Buyers are alerted early in the process that insurance should not be an afterthought, and fewer deals fall through the cracks because of insurance issues.

“It makes sense,” says Kriby, “to take the initiative and offer a simple and convenient insurance solution.”

For buyers who are on their own, follow the good principles of insurance shopping: Ask friends and family for recommendations, shop around with numerous carriers or deal with an independent agent who works with a number of different carriers, consider a higher deductible and bundle auto and homeowners insurance with one carrier.

Also, don’t insure the place for more than it’s worth. In that regard, don’t cover the land, the cost of which could be as much as 25% of the price of the house. Do all these things, but do them as soon as your offer is accepted so you won’t be blindsided later in the process.