Policies on Vacant Homes Spike in Slow Market

The soft real estate market, along with the slower increase, or in some cases decrease, of real estate values has some homeowners shopping for cheaper insurance.

Many are concerned with having just enough coverage to satisfy their mortgage lender, while others might be looking to lower their bills any way they can.

However, several in the insurance industry warned consumers not to look strictly at the bottom line.

“All homeowner’s policies are not created equal,” said Greg Jenkins, an agent with Rogers Insurance. “Anyone can write you a cheap premium, but what you don’t want is a cheap policy.”

It’s also important to make sure the policy covers the cost of replacement, not just the cash value of the property, which will depreciate, said Lenita Blasingame, chief deputy commissioner for the Arkansas Insurance Department in Little Rock.

Although many agents agreed that the slowdown in the real estate market in Northwest Arkansas hasn’t directly changed the prices or number of homeowner’s policies being written, there have been some ancillary affects.

Al Pearson, an agent with United Insurance Agency Inc. in Harrison, said he’s seen an increase in the number of policies being written for vacant homes.

Sometimes, this occurs when a homeowner buys a new house before the previous one is sold, other times it happens in the instance of an older family member dying. Because the housing market is saturated, many properties are sitting on the market for longer periods.

Another factor is that builders of spec homes are having a tougher time selling.

When constructing houses, the developer usually purchases builder’s insurance, which covers the structures for a year.

Many developers are being forced to extend those policies for another year, but some agencies won’t write extensions. In this case, the developer must opt for vacant dwelling insurance.

Insuring a vacant dwelling is much costlier than buying a policy for an occupied home. This is because empty houses are often at a much greater risk for vandalism, fire or other types of damage than houses people are living in.

Vandalism can be extremely costly to repair. Jenkins has seen houses where vandals caused $25,000 to $35,000 worth of damage.

The cost for these policies often triples or even quadruples the price of a regular homeowner’s policy. Jenkins recently wrote a policy for a customer who bought a new home before his previous one sold. The policy for the older home was $530 a year while the customer was living in it, but as a vacant dwelling, increased to $980 for six months. For homeowners just looking to lower their bills, caution is key.

“We are an agency where our philosophy is to provide the best coverage. And we’ll get that for you at the cheapest rate we can, but we’re not going to skimp on coverage,” said Christy James, personal lines manager at Brown Hiller Clark & Associates in Fort Smith.

One of James’ customers recently learned the importance of good coverage. The customer filed a $50,000 claim for damage caused by water sewer backup.

Some policies won’t pay for this. But James’ customer was covered, which was fortunate, because the city of Fort Smith will only reimburse homeowners $500 for sewer backups.