California’s homeowner’s insurance crisis is hitting real estate transactions hard.
“There is no problem with home appraisals and inspections, but there are quite a few cases where people are unable to get homeowner’s insurance or the deal falls through due to high premiums,” said a Korean-American real estate industry insider.
An $800,000 single-family home in Orange County broke escrow when the annual homeowners insurance premium was $10,000. The buyer decided not to purchase because it would cost $833 per month for homeowners insurance alone. That’s equivalent to $150,000 on a 30-year fixed mortgage.
“Homeowners insurance has been heavily emphasized at the contingency lately because finding homeowners insurance has become more difficult,” said Redfin Orange County agent Jin Hong. “It is recommended to apply for homeowners insurance first when you open escrow.”
This is true across the board in California. According to the California Association of Realtors’ (CAR) 2023 Housing Market Survey, 17% of agents have had a home sale fall through because homeowners insurance was too high or denied, and about 7% of transactions broke escrow due to homeowners insurance-related issues. The homeowners’ insurance crash comes as large insurers are exiting the homeowners market in California.
In California, at least seven of the top 12 insurers have halted new writing or pulled out entirely since 2022.
If homeowners can’t get insurance, the California FAIR Plan is their last resort.
“Many homeowners are being forced to use insurance companies they’ve never heard of or to apply for fire insurance through the state’s FAIR Plan,” said Amy Bach, Executive Director at United Policyholders, a consumer education and advocacy organization.
The FAIR Plan is available for both homes and businesses. Policyholders can get coverage for homes and properties in a fire, such as a gas explosion.
Premiums vary depending on the price of a home and location. Homeowners can apply for coverage online or through an insurance agent. Insurance agents are prohibited from charging commissions for helping people enroll in the California FAIR Plan.
As of June, there were more than 408,000 FAIR Plan enrollments, the state reported. That’s a 164% increase from 2019.
Prospective buyers have increasingly turned to the government’s FAIR Plan as homeowners insurance has become more difficult to find.
“The average time to closing has been shrinking to 21 to 25 days, but it takes about three weeks to get FAIR Plan’s policy, which makes it difficult to close a home sale on time,” said Christine Shin, President of Northwestern Capital. “All-cash buyers are very much in favor as sellers prefer to get multiple offers and close quickly,” she added.
BY EUNYOUNG LEE, HOONSIK WOO [lee.eunyoung6@koreadaily.com]
