Every couple of months, I get a call from a realtor, an insurance agent, or a mortgage loan officer. The stories are variations on a theme; they have a client that’s trying to buy a home but there’s one little issue that’s threatening to derail the close. Usually these gotchas present themselves when the home buyer has found their dream home only to discover their current insurer is unable to insure it. This usually is not discovered until two weeks or less before the scheduled close and creates a mad scramble to find insurance for the buyer’s dream home. They call me.
These home gotchas may appear pretty innocent at first, but there’s usually a history behind why many insurance companies won’t write them. These “features” are:
- Wood roofs
- Composition shingle roofs over wood roofs
- Flat roofs
- Aluminum wiring
- Synthetic stucco or EIFS
Wood Roofs: Wood shingle roofs were all the rage in parts of north Texas during the 1980s and 1990s. Many home owner associations even required them because of the beauty and status they conveyed until one eventful fire in Plano in the late 1990s.
The fire started in one home located on a cul-de-sac. Plano’s fire department responded quickly but was soon outmatched. Every home on this cul-de-sac had a wood shingle roof except one. Embers from the one home were carried aloft by the heat and a light wind and landed on each of the homes in the cul-de-sac. Soon all of the homes were ablaze except one. Each of the homes with wood shingle roofs was a total or near total loss. The home with the composition shingle roof was the only home to survive with minor damage.
Most insurers stopped writing wood shingle fires within a year or two of this event. Wood shingle roofs are a fire hazard, even when treated with a flame retardant and represent more risk than the most companies want to take on.
Composition Over Wood: The most inexpensive roof replacement a home owner can do is to lay a new roof over an older one. It’s involves less labor and cost because the old shingles are not removed and hauled to the dump, and even that requires a permit which costs money. As a result, multi-layer roofs were not uncommon prior to 2000. I occasionally still run into them now.
Texas law changed and required the old shingles be removed before a new set of shingles can be applied. In the event of a wooden shingle roof, the old shingles are to be removed and replaced with plywood decking before new shingles can be applied. Most insurance companies would rather avoid this expense so many refuse to write comp over wood roofs.
On a related note, most insurance companies will restrict the number of layers of comp over comp roofs they’ll write. Many will insure a 2 layer roof, but almost no one will write a 3 layer roof. The sheer weight of these layers can actually compromise the structural integrity of the trusses and lead to a roof failure or collapse.
Flat Roofs: This style of roof is popular among contemporary style homes as it provides clean lines and angles that enhance the home. While aesthetically beautiful, flat roofs make some insurance companies run the other way due to leaks and interior damage from the leaks. Here are two things to look out for:
- The roof’s material
- The angle of the roof
Many of these roofs are made of poured tar and gravel. Most companies that don’t like tar and gravel roofs base their underwriting decision on the fact that it cost more to replace this type of roof than a standard shingle roof. They are more resistant to hail damage than composition shingles so if you have one that was recently installed, see if your installer provided you with a certificate showing the roof’s hail classification. It could net you a discount with your current insurer.
The flatter the roof is the longer it takes for water to drain, so the angle of the roof is important. If there is even a slight angle of 5 to 15 degrees, it may help an underwriter say yes rather than no. If it’s completely flat, check with your insurer first before making an offer.
Aluminum Wiring: Copper prices spiked in the 1960’s similar to what we’ve seen recently. Many home builders turned to aluminum wiring during the mid-1960s to the early 1970s. The benefits were it conducted electricity well, some say better than copper, and it was cheaper than copper wiring.
Aluminum wiring has one major problem though; it can degrade over time due to oxidation. When it degrades, aluminum wiring may do one of two things:
- It can generate excess heat
- It can fail at junctions or switches and outlets
The amount of heat aluminum wiring generates can start a fire once the oxidation process has begun. In the case of switches, outlets and junctions, aluminum wiring can become brittle and begin to arc. Both scenarios have resulted in home fires where homes and lives have been lost.
Most insurance companies will not knowingly write a home with aluminum wiring. Those that do will want to know if the outlets and switches have been replaced with copper pigtails. While this is less than completely rewiring a home ($8,000 plus), it is still a significant investment ($3,000 plus), requires a trained electrician that’s been certified in this process and a special tool. Even if this step has been taken, it may not help your odds in getting coverage for your home.
Synthetic Stucco: Synthetic stucco or EIFS (Exterior Insulation and Finishing System) siding is beautiful on certain homes and has several benefits over traditional stucco or concrete finishes:
- It cost less to apply
- It is an excellent insulator that enhances a home’s energy efficiency
Its weaknesses, however, outweigh its benefits with insurance companies:
- It does not breath
- It’s susceptible to damage
EIFS doesn’t breathe and as such can lead to mold growth in a home. No insurance carrier likes mold, nor do they like anything that contributes to mold. This alone is enough of a reason for most insurance companies to decline coverage for a home with synthetic stucco.
The other reason EIFS is no longer used in north Texas is it’s susceptible to damage. I have three sons that have thrown baseballs against brick walls working on improving their skills fielding grounders, as well as kicked soccer balls working on aim and shot velocity. If our home had EIFS siding, it would never have survived that.
Historically, I’ve been able to write most of these which is why I’ve receive these phone calls from loan officers, realtors or other agents that can’t. I’m pleased I can help, but the buyer needs to be aware:
- It cost more to insure these homes due to surcharges
- They will have higher out of pocket expense due to higher deductibles
Each of these gotchas cost more to insure because there is more risk involved for the companies that still write them. These surcharges start at 20% and go up from there depending on which issue is present. Add a potentially higher deductible such as 2% and the out of pocket expense can climb when a hail or other claim occurs. The number of companies that will write a standard policy on these homes continues to decrease each year.
I have two recommendations for most home buyers before they make an offer on their new dream home, especially if it has one of these gotchas.
- Know who will and who won’t write a policy
- Understand the impact on premium and the deductibles
It’s better to know this up front than in the week or two before closing. Do you have an experience or comment you’d like to share or a question to ask? Post them in the comments section of our blog or on our Facebook page. I’d love to hear from you!