The Porter-Brandenburg Agency has received a record number of orders for builders risk insurance in 2016 from fixer-uppers. Chip and Joanna Gaines have popularized the process of buying older homes and restoring them on their hit HGTV program Fixer Upper. The TV show makes it look easy to remodel an old home and sell it for a profit.
Buying an older home and remodeling it then selling it for a profit, has been going on for years but the Gaines team and other professional remodelers who film the process have spawned a whole new generation of remodelers. There appears to be an increasing number of people out there who want to take a hammer and knock out a wall. There are days when I want to hit something with a hammer as well, but since I know that I am much better at taking things apart than putting them back together, I have resisted the urge to be a fixer-upper. I am content to sit here at my desk and write insurance for those who do.
What type of insurance does a fixer-upper need to cover the property that they are working on? Most of the time the best answer to that question is a builders risk policy. The builders risk policy was designed by the insurance industry to provide property insurance for owners, builders and remodelers during construction. It is important to note that a builders risk policy only pays for damage to the property caused by a covered peril. There is no coverage for general liability or workers compensation. (See discussion of the coverage and exclusions in a prior article.)
Another major way to write dwellings being remodeled is to write a dwelling fire policy that will grant permission for vacancy and remodeling. Some insurance companies can be very flexible with this product and will continue the policy once the construction is completed. This dwelling fire policy might be just the thing for the investor who wants to collect rent instead of selling the property. In order to obtain the best policy for the money, you will need to call an agency that specializes in and has experience in writing insurance for fixer-uppers, investors, flippers or residential remodelers.
The Porter-Brandenburg Agency is that agency.
Because we are an independent agency and represent multiple companies, we can shop for the best product for the best price available for our customers. We prefer not be limited to one company because there are unique situations that arise and it is best to call an agency that has not only experience but options as well.
For example, a few months ago we received a call from a fixer-upper who purchased a builders risk policy and due to construction delays, did not complete the project within the policy period. Their insurance company would not renew the policy. When we received the call, we could detect the desperation in their voice and decided that we were going to help. The main reason we took on this task was because sooner or later the same thing could happen to one of our clients. We shopped the market and found coverage at an affordable price and gained a new client who we expect will be fixing up more homes in the future.
To be properly insured for property damage, fixer-uppers should purchase either a builders risk policy or a dwelling fire policy. But those policies just cover the damage to the dwelling. What about when workers are injured? To cover injured workers, one needs to make sure all workers who come to the premises have workers compensation (WC) insurance.
What happens when a neighbor’s property gets damaged due to construction activities that took place from your property? For example, a worker accidentally starts a fire that spreads to the house next door. Or a neighbor’s child playing in your yard gets injured? For these situations, the fixer-upper needs general liability (GL) insurance.
The bank will require fixer-uppers to have property insurance in case the house burns down or gets damaged from wind, hail or some other peril. What really surprises me is that most banks do not require fixer-uppers to provide proof of GL or WC, and what the bank does not require most fixer-uppers do not buy.
We recommend that fixer-uppers purchase GL and WC insurance and make sure all workers who come to the premises either sign a DWC-83 (WC waiver) or supply a certificate of insurance showing proof of coverage. The next best level of coverage is to have all subcontractors name the fixer-upper as an additional insured on their liability policy and provide a waiver of subrogation on their WC.
How long will this robust fixer-upper and real estate market continue? No one knows for sure; but as long as the interest rates are low, the economy stays healthy, and there is a demand for newly remodeled homes, the trend will continue. The increasing price of real estate has not seemed to slow the demand for remodeled homes.
Call 972.234.5588 for a builders risk insurance Texas quote.
How do you insure a home, dwelling or building during the construction phase? See part 1 of our builders risk insurance series.