Expert Commentary

"Showhomes" Solves the Coverage Problems of Home Vacancy

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.

Personal Risk Management
June 2010

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.

  1. There is an initial setup charge for moving all the furniture and the resident manager into the home, plus
  2. 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 where you can check out sample newsletters, brochures, other articles written on various issues. For background information, see Mr. Hungelmann's biography.

Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author's employer or IRMI. Expert Commentary articles and other IRMI Online content do not purport to provide legal, accounting, or other professional advice or opinion. If such advice is needed, consult with your attorney, accountant, or other qualified adviser.

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