"Showhomes" Solves the Coverage Problems of Home Vacancy
June 2010
In my July 2009 article, "Managing
the Risks of a Vacant Home," I wrote about the insurance problems facing
the owners of vacant homes, which continue to be a problem in today's real estate
market. Problems like glass breakage and vandalism exclusions often typically
start at 60 days of vacancy (although I have seen some independently filed forms
where the exclusion starts as quickly as 30 days). Even arson is sometimes excluded.
Insurance companies are so concerned about the added risks of a vacant home,
that they often will cancel a policy midterm and not even wait for the renewal
date.
by
Jack Hungelmann
Corporate 4 Insurance
Agency, Inc.
I described in the article how noninsurance strategies, specifically avoiding
the risk by furnishing the homes sufficiently so they could be lived in, would
no longer be considered "vacant." However, insurers are still skittish about
a home that has an extended period of unoccupancy. So, if a home is either
vacant or unoccupied, how does one get insurance at preferred rates and with
the broadest possible perils coverage? A nationwide franchise program called
Showhomes offers a good solution to both problems.
How Showhomes Works
Showhomes solves
both the vacancy and unoccupancy problems. A resident manager moves in and completely
furnishes the place. The manager takes care of the premises, including lawn
care, snow removal, etc., and pays the utilities. The manager also keeps the
home neat and ready for showing at any hour. When a prospective buyer comes
through the home, they see that it is clearly cared for inside and out. There
is food in the fridge and clothes in the closet. Prospective buyers pay more
and buy more quickly in an occupied, nicely furnished home.
Resident managers pay Showhomes a monthly rent, about a third of the rental
value for that type of home in the rental market.
Features of the Contract
I've read the Showhomes' contract. From a risk management perspective, it's
quite reasonable to both parties. Note the following.
- Insurance Obligations—Showhomes agrees
to carry general liability for injuries and property damage to the public,
special perils legal liability coverage for damage to the home itself, and
workers compensation. The homeowner agrees to continue the insurance on
the home.
- Mutual Waiver of Subrogation—Both
parties agree to waive claims against the other to the extent the loss is
covered by their own insurance.
- Mutual Indemnity Agreement—Both parties
agree to defend and pay any judgment against each other when one party is
sued due to the sole negligence of the other party.
The Benefits
There are several benefits to the owner of a vacant home of the Showhomes
relationship:
- The home is no longer vacant or unoccupied—ergo, no exclusion for glass,
vandalism, or arson.
- The insurance is no longer at risk of being immediately canceled. In
fact, the homeowners policy underwriter may elect to continue the homeowners
policy. The home is now occupied by a "caretaker," and the homeowner is
not receiving rental income from the resident manager.
- If the policy must be rewritten due to the fact that it is no longer
owner-occupied, the home should be eligible for a preferred market dwelling
fire policy. This means preferred rates and broad coverages, thus avoiding
the high-priced limited-coverage specialty marketplace.
- There is a high probability of a quick home sale at a better price.
- It transfers the maintenance and responsibility for utilities to the
resident manager. This is especially an advantage if the owner of the home
has moved to another area. (The resident managers won't however scrape up
your doggie poops, nor will they clean your swimming pool!)
The Costs
Here is how Showhomes prices its services.
- There is an initial setup charge for moving all the furniture and the
resident manager into the home, plus
- A percentage of the sale price (typically 3/4 of 1 percent). The costs
can be deferred until closing. The costs also are generally covered by the
higher sale price of the home.
Closing Thoughts
Showhomes isn't the only provider of this type of service. It's just the
only nationwide provider that I know of. I found the concept really intriguing
and a perfect solution for risks caused by a vacant home. By the way, as I understand
it, applications for resident manager positions are available on the Showhomes
website. In my more adventurous days, that experience would have been a lot
of fun!
Jack Hungelmann's book Insurance for Dummies,
contains much of this information and is available at your favorite bookstore
or
online. For more information on his risk management and insurance business,
go to www.JackHungelmann.com
where you can check out sample newsletters, brochures, other articles written
on various issues. For background information, see Mr. Hungelmann's
biography.
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