The rising cost of fire insurance diminishes purchasing power among buyers
and can stifle demand too. For some, the rising cost will be a deal breaker
and make the market unaffordable, and those homeowners on a fixed income
are being forced to find a way to pay for the huge increases.
fornia Appraisals in Chico, told me
about this dynamic. On the day before
the Camp Fire, he says, there were 252
homes listed for sale in the Chico area,
and in less than one month it dropped to
91 as desperate buyers relocated. Homes
in November and December of last year
— after the fire — sold anywhere from
5 percent to 25 percent (or more) above
the list price, which is astounding rap-
id price growth in such a short period
of time.
The most striking effect from the
Camp Fire is rising fire insurance costs
for residents of outlying portions of some
of the 10 counties in the Capital Region
where wildfire risk is high. Some tradi-
tional insurance companies are declin-
ing to offer services in these locations.
Real estate broker Eric Carlson of
Lyon Real Estate in Cameron Park says
some clients are getting insurance
quotes at $8,000, $14,000 or even $20,000
for just one year. And he says some
buyers are hesitant about purchasing
because they don’t want to pay an ad-
ditional $300-$400 per month for insur-
ance. It might not seem like a big deal
whether a buyer has insurance or not,
but most lenders require it before escrow
can close, which makes fire insurance a
prerequisite when buying a house.
Many local buyers and owners have
had to go to the California FAIR Plan for
fire insurance coverage. This type of in-
surance is expensive and it’s basically a
last-resort policy available in Califor-
nia that is often used when someone
has not been able to obtain insurance
through a traditional provider. Tom
Turner, a homeowner outside of Jackson
in Amador County, knows this firsthand
because his insurance provider sent
him a letter saying it would cancel the
fire insurance portion of his coverage.
Turner says he’s now paying about $1,000
more per year through the California
FAIR Plan.
This is a big issue because the rising
cost of fire insurance diminishes pur-
chasing power among buyers and can
stifle demand too. For some, the rising
cost will be a deal breaker and make the
market unaffordable, and those home-
owners on a fixed income are being
forced to find a way to pay for the huge
increases. More affluent buyers can sim-
ply bite the bullet and pay the higher
cost as a trade-off for living in a more ru-
ral area.
So should that owner in Nevada City
sell?
We are living in uncharted times and
we don’t know how the insurance mar-
ket is going to unfold in coming years in
response to more destructive wildfires
in California. This uncertainty adds a
question mark about rural real estate
in the Capital Region. We have to keep
watching insurance costs, pushback
from buyers, owner sentiment, price
changes and whether listings are selling
or not. Rising insurance cost is definite-
ly something that can constrain prices
over time because it makes it much more
expensive to own property.
As we presumably have more mas-
sive fires in future years, this is some-
thing we are going to have to monitor
closely to see how residents, governmen-
tal agencies and insurance carriers
respond.
THREE TIPS FOR HOME BUYERS
Local insurance agent: If you are pur-
chasing a home in a rural area where fire
insurance could be a high cost, be sure
to talk with a local insurance agent early
in the buying process so you know what
you are getting into.
More than supply and demand: Real es-
tate isn’t just about supply and demand.
New laws, taxes, regulations and chang-
ing business dynamics can affect prices
and affordability in a market.
It’s unpredictable: If youre planning to
buy in a more rural market in California,
it’s important that you are OK with living
in the tension of this new dynamic.
Now let’s hold on with fingers crossed
hoping these next few months won’t bring
more catastrophic fires. We sure could use
a break in California. n
Ryan Lundquist is a certified real estate
appraiser at Lundquist Appraisal Com-
pany. Read more at sacramentoapprais-
alblog.com. On Twitter @SacAppraiser.
Have you had difficulty
finding fire insurance?
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