One deadline in the Contract to Buy and Sell Real Estate that used to be a formality, but now requires more attention and due diligence on behalf of the buyer, is the Property Insurance Termination Deadline.
Like many deadlines in the contract, this one exists for the sole benefit of the buyer, giving the buyer the right to terminate the contract should they be unable to obtain insurance that is both adequate and affordable, in their sole and subjective discretion.
Additionally, if the buyer is purchasing the home through a mortgage lender, the lender too will require an insurance policy to be in place prior to granting final loan approval.
The current drought conditions existing across the West, coupled with expansion of residential areas into previously rural, sparsely inhabited regions, mean insurers are growing increasingly reluctant to underwrite properties in places where there is risk of wildfire and fire protection services are not close by.
According to the Verisk Wildfire Risk Analysis, Colorado ranks third in the nation for the number of homes at high or extreme risk of wildfire. More than 2 million Coloradans live in the wildland/urban interface, and this number is expected to increase by 300 percent in the next 15 years. Additionally, the National Institute of Building Sciences estimates that for every dollar invested in mitigation, $6 is saved in disaster relief.
While some insurers will flatly refuse to consider insuring properties in certain areas, most are still prepared to do so, provided the property owner takes steps to help share the risk. These steps can include the creation of a defensible perimeter around the home, encouraging or requiring use of fire-resistant building materials for siding, roofing and windows, and providing easy access to the property for emergency vehicles and personnel.
Defensible space includes appropriate pruning and thinning of trees and shrubs and removal of certain types of trees within an appropriate distance of the home, ensuring fences and landscaping made of combustible materials do not come into direct contact with the home, and maintaining this space by keeping it clear of trash and debris.
For sellers preparing their homes for sale, investing some time and resources into creating a defensible space will not only increase the appeal of your home to prospective buyers, it will greatly improve the buyer’s ability to close the transaction through being able to obtain adequate insurance. For buyers, starting the process of securing insurance early on in the buying timetable will enable sufficient time to research and secure appropriate coverage.
Hayden Mellsop is a board member of the Realtors of Central Colorado.