Westcoe Realtors, Riverside Ca…We had a buyer ask one of our agents this very question this past week, and we thought you all might like to know the answer…because it can affect a buyer’s pocketbook!
To begin, yes…a seller is required to let any prospective purchaser know if the seller has filed any insurance claims on the property within the past 5 years.
First, this is done so that the buyer can have any inspections done to the home to make sure that whatever issue the seller had is indeed totally repaired.
For example, if there was a flood in the home (overflowing toilet while the seller was on vacation for instance), then the seller would show the buyer paperwork on all the work that was done by the insurance company to rectify the flooding. However, the buyer may be very sensitive to, let’s say, mold, and because of the buyer’s sensitivity, said buyer may want to have additional inspections done on the home before removing any contingencies. If there was no requirement for the seller to disclose the insurance claim, if the flooding occurred 4 years ago, then maybe the seller would assume all was well, and not think they needed to disclose a problem that had been fixed for over 4 years.
However, the above is not the real reason a seller must disclose any claims within the past 5 years. Here is the real reason this disclosure must be made.
It is made because if the seller has made numerous claims on the property within the past 5 years, then the buyer more than likely will find homeowners insurance on this property to be more expensive than normal.
All home insurance claims are logged onto a central site, that can be accessed by any insurance company. Think DMV here, where any insurance company can check out your driving record before offering you auto insurance. Houses work the same way…there is a central site an insurance company can check before offering a homeowners insurance policy.
So…if a particular property has had numerous claims within the past 5 years, then the buyers new insurance company may be leery about issuing a policy on a house that obviously has some issues. In a case like this, the buyer may have trouble getting insurance at all (depending on the number of claims), or if they do, then the new insurance company will probably bump the price of the insurance way up to cover some anticipated claims.
Therefore, the seller’s disclosure of the number of claims puts the buyer on notice to check things out with the buyers new insurance company.
Also, as an FYI, this central reporting site also tracks the name of the seller filing all these claims…and when this seller tries to get new insurance (if they acquire a new home), THEY may find the rates very high as well. The thinking here is that the insurance company cannot be sure if the previous house was the problem, or if the seller was the problem.
Either way, the insurance company is going to price insurance accordingly, since they don’t want to lose money on either a bad house, or a potentially negligent seller who files a lot of insurance claims.
We hope this helps if you ever find yourself in this “insurance” situation in the purchase of a home.