One of the biggest surprises resulting from the COVID-19 pandemic was the housing-market boom. Nearly two years later, homes continue to sell at a brisk pace and for record prices. And in many cases, buyers are competing against multiple offers.
As the pandemic continues to subside, these conditions don’t appear to be drastically changing. Although sales may slow somewhat in 2022, economists are predicting a robust housing market that is marked by higher demand among millennials, who are at peak ages to buy their first house.
This is good news for everyone in the housing industry, including mortgage lenders and originators. When closing a home sale, however, time is of the essence. Often, an unexpected monkey wrench occurs in the form of homeowners insurance.
Unwise to wait
The insurance roadblock is more common than one might think, and it’s often one of the last-minute items that should have been checked off days or weeks earlier. Without evidence of homeowners insurance (otherwise known as a binder), the closing can be delayed. In a competitive market, this can cause the buyer to lose the house.
Some insurers have mitigated the risks of a failed closing by proactively reaching out to prospective buyers with insurance information and quotes. But the many other complex details involved in buying a house tend to take center stage. Buyers simply forget to purchase homeowners insurance and it’s often a hassle to get a quoted premium. There are so many moving parts in closing a deal that any one of them can cause the process to screech to a sudden halt.
Part of the problem is that people have become accustomed to text and email alerts. Doctors, dentists and even teachers, for example, send automated reminders of appointments and deadlines. But until recently, homebuilders, lenders and insurers have not collaborated to create a more frictionless and satisfying client experience.
The opposite is often the case. To receive a quote from an insurance agent, prospective home-buyers often must answer dozens of frustrating questions, which require knowledge of such arcane matters as the home’s original building materials, its roof type, and the distance between the house and the nearest fire hydrant. Many first-time buyers also mistakenly think that homeowners insurance covers losses caused by floods and earthquakes, but it doesn’t.
Ambiguity of cost is another challenge. After making an offer on a home and having it accepted, buyers then reach out to agents to secure an insurance policy. The cost may be more than expected, so the buyer then looks for a better price elsewhere as the clock ticks toward the closing.
Waiting until the eleventh hour is unwise as it can take time for an agent to find adequate insurance coverage, particularly if the house is in a high-risk area that is vulnerable to wildfires or in a coastal area where hurricanes make landfall. If the evidence of homeowners insurance is not in place on the day of the closing, chances are the deal will be postponed or cancelled.
Insurance agencies can now partner with mortgage lenders and other stakeholders to integrate a technology-platform solution, thus making the process of purchasing homeowners insurance easier and faster for the buyer. If a lender uses a portal or application programming interface for integration, they can request a policy on behalf of their client to guarantee the evidence of insurance at closing.
Typically, a homebuyer must request proof of insurance from their agent and send it to the lender before closing. This is only one of many things the buyer has to do prior to closing, which is usually a very busy, exciting and stressful time. So, this task often gets done at the last minute or is forgotten altogether, which may result in a delayed or terminated closing. A tech-based insurance partnership, however, puts the originator and lender in control of the process, allowing them to order the policy well in advance and ensure that the sale closes on time.
According to an August 2021 survey from the National Association of Realtors, 72% of home-purchase contracts in the previous three months were settled on time while the remainder were delayed or terminated for various reasons (including appraisal issues). These setbacks are not solely the fault of homebuyers, who are not real estate, mortgage finance or insurance experts. These failures rest, in part, with builders, lenders and insurers.
Buying a home can be stressful and the acquisition of homeowners insurance is simply one more item on the buyer’s to-do list. With surging demand among millennials and other generations to buy or refinance a home, a tech-based solution is important for ensuring that homeowners insurance doesn’t shut the door on a successful transaction. ●