By Wally Conway, HomePro Inspections president
Prior to real estate closing, a homebuyer needs homeowners insurance. The insurance agent has asked for a four-point insurance letter.
It would seem they could save some money by simply sending the home inspection report.
Ever wonder why you can’t simply send the home inspection to the insurance agent?
The four-point insurance letter and home inspection report are very different documents.
Understanding the content and intended use of each can save your homebuyer aggravation and expense when shopping for insurance.
The four points of the insurance letter are roof, electrical, plumbing and HVAC.
As requested by most insurance companies, all that is required is system type, age and life expectancy.
There is no need for kitchen appliances, doors and windows, siding, floor coverings or hundreds of other items typically mentioned in a full home inspection report.
In the hands of the insurance underwriter, these unrequested comments cause problems.
The content of the home inspection report is regulated by Florida Statutes Chapter 468 via the Standards of Practice (SOP). The SOP requires the report includes age, condition, life expectancy and recommendations for correction for each system and component.
The inspection often reports on 500 or more separate and distinct items.
The intent of the home inspection report is to provide the customer with a document describing each and every component in the home. Combined with the purchase and sale agreement, the inspection report is a key part of the buying decision, as well as negotiations.
If the home inspection report ends up in the hands of the insurance underwriter bad things often happen.
The underwriter must search to find the four items that are needed to quote the insurance policy and bind coverage. They are often overwhelmed, confused and concerned.
When the insurance underwriter sees in the report that there are items that cause concern, it is common that these items will result in fewer companies that will write coverage, a premium increase or a requirement that items be upgraded prior to an insurance policy being written.
Repair requests from an insurance underwriter complicate the closing process. The buyer often feels these are a seller responsibility.
Since repair requests made by an insurance company are not typically addressed in the purchase and sale agreement, sellers feel the repairs are not their responsibility.
When a buyer and seller see things differently, it is difficult to get to closing. It doesn’t have to be that way. Use each document for its intended purpose.
The primary purpose of the home inspection is to provide the homebuyer with peace of mind and to substantiate requests for repairs or negotiation as may be allowed for within the purchase and sale agreement. It should never be used to obtain a homeowners insurance quote.
The four-point insurance letter has as its sole purpose to provide information to the insurance underwriter to quote the insurance rate. It should never be used by a homebuyer for any purpose.
It is important the home inspection report and four-point insurance letter are complete, correct and consistent. Incomplete information erodes customer confidence.
Incorrect information leads to flawed decisions. And inconsistencies complicate closings.
The simple solution is to choose a full service home inspection company that can gather the information in a single visit and electronically deliver the proper documents in an expeditious manner.
About the author: Wally Conway founded HomePro Inspections in 1994. He has been a regularly featured expert on the HGTV series “House Detectives”; co-hosted the DIY Network series “Finders-Fixers”; and is co-host of “The Home and Garden Show” radio show on WOKV every Saturday. Passionate and ever eager to share an idea, Wally also speaks regularly across North America.