Real Estate Round-Up: U is for unexpected discoveries

In real estate, we try to anticipate everything that could impact a transaction. The best way to stave off any unexpected discovery is through full disclosure by the seller of everything they know about the property that could affect the value and desirability of the property. As I’ve mentioned recently, disclosure by the seller is one key to a smooth transaction. There are also reports that sellers provide to the buyers which provide information from third parties that add a layer of disclosure that the seller would not necessarily know themselves. Reports like the Natural Hazard Disclosure and Preliminary Title Report both provide invaluable information to the buyer.

The Natural Hazard Report addresses disclosures based on the location of the property. There are six key hazardous areas that the report discloses on. Two of them pertain to flood zones. If homes are in either of these two zones, there is a high probability that the lender will require additional flood insurance. Two other zones address hazardous fire zones. Unfortunately, nearly all of Fallbrook and Bonsall fall into one, or both, of these zones.

The remaining two zones address seismic activity zones. Fault zones in California have been mapped, so properties within an identified fault zone will be recognized on the report. The seismic hazard, more general zone, has not been fully mapped. I’ve always thought that once they get this mapping completed, every property will end up in a seismic hazard zone, so I believe this map will never be completed.

Imagine if every home in California had to get earthquake insurance? The cost is high, the deductible is high, and the coverage is low. Mandatory earthquake insurance would add one more expense to the already high cost of owning a home.

All three of these defined hazard areas pose challenges when it comes to insurance. Flood insurance can be found and purchased as an additional coverage. Earthquake insurance can be found and purchased as an additional coverage. Insurance if you experience a fire has become increasingly more and more difficult due to the number of recent fires across the state that have wiped out complete communities. This new challenge to purchasing a home in California became very real to me, this past week.

We have had the same company with the same coverage for close to 10 years. We have never filed a claim. We have stucco boxed in eaves on our home, which means there is no exposed wood, at all. We have a detached three car garage with the same construction, which keeps all combustible materials away from the primary residence. We have attic vents with micro-metal mesh, and we have metal mesh covers on our gutters. We clear our land to keep the brush down and we are completely irrigated around the structures. We even have a pool with a pump for a back-up water source. But our insurance provider is pulling out of California in 2022, so we will have to find new insurance. This is an unexpected discovery.

I contacted our insurance provider who told me that at this time, all major insurance providers are pulling out of California in 2022. If this doesn’t change, it would leave everyone who is purchasing a home in one of the two “fire zones” to most likely end up purchasing the California Fair Plan. Look this one up, folks. The California Fair Plan is nothing close to fair. Rates would double or triple for most homeowners.

The Fair Plan Dwelling Fire Policy is a named peril policy, which provides coverage only for damage caused by the specific causes of loss listed in the policy, which includes fire and lightning, internal explosion, and smoke. Optional additional coverage would have to be purchased for vandalism, malicious mischief, and liability. It also only covers the structures, not your personal property.

So, I want you to realize what potentially is happening to insurance. In everyone of these hazard zones a homeowner would have to purchase two types of insurance. In the case of homes in flood zones, the owner would have to purchase homeowners’ insurance for their primary coverage and flood insurance as an add-on.

In earthquake zones, homeowners would have to purchase primary coverage and earthquake coverage as an add-on. And now with fire becoming the hot, excuse the pun, issue, homeowners in designated fire hazard zones would have to face the challenge of purchasing fire insurance from the Cal Fair Plan and an add-policy for vandalism, malicious mischief, liability, and coverage for personal property damage.

As property owners you must do your best to provide complete information to avoid unexpected discoveries. Add to your list, the reality that insurance is the next big-unexpected discovery. If you are planning on selling your home, make sure you work with a professional, experienced Realtor who will help the cooperating buyers’ Realtor find insurance for the buyer. Without insurance, any purchase that involves a mortgage, will not be able to close escrow. Even cash purchasers would be remiss to believe they can self-insure. This could be the biggest-unexpected disclosure that we have faced in residential real estate. Now you know, so this should not be unexpected.

Kim Murphy can be reached at [email protected] or 760-415-9292 or at 130 N Main Avenue, in Fallbrook. Her broker license is #01229921, and she is on the board of directors for the California Association of Realtors.