This is getting to be a real problem, and there doesn’t appear to be a Plan B. Hat tip to Richard!
As home insurers flee California, the stateâs last-resort insurance plan is warning that itâs being pushed toward insolvency, forced to cover a rapidly growing number of properties that have lost traditional coverage and unable to collect enough in premiums to cover potential losses.
The number of homes and commercial properties in high-risk wildfire areas covered by the California FAIR Plan has more than doubled, from 154,000 in 2019 to 375,000, and liability exposure has ballooned from $50 billion in 2018 to $336 billion in February, its president told lawmakers at an insurance committee hearing last week.
âThese are huge numbers,â California FAIR Plan President Victoria Roach told the committee. âAnd they continue to grow. ⌠As those numbers climb, our financial stability comes more into question.â
Roach added that one bad wildfire or even a series of smaller fires could overwhelm the planâs resources, forcing it to bill all the stateâs insurers for liabilities it cannot cover, which they in turn would pass on to all their insured home and business customers as higher premiums.
âItâs a gamble,â Roach said. âWe are one event away from a large assessment, thereâs no other way to say it, because we donât have a lot of money on hand, and we have a lot of exposure out there.â
Roach said the FAIR Plan has cash on hand âsomewhere in the neighborhood of $700 million.â
The FAIR Planâs financial instability has emerged as collateral damage from the stateâs insurance market meltdown. Major carriers have discontinued or restricted coverage in recent years following a series of costly wildfires â 14 of Californiaâs 20 most destructive wildfires burned the state in the last 10 years. Thatâs forced property owners whoâve lost coverage onto the FAIR Plan in rapidly growing numbers â with 1,000 applications now every work day.
Elected Insurance Commissioner Ricardo Lara last fall announced plans for a major overhaul of the stateâs home insurance regulations and already has rolled out proposed new rules to speed approval of rate increases and allow computer catastrophe modeling to factor into them. Those changes are on track by the end of the year, Lara said.
But it isnât coming fast enough for both consumers and insurers. State Farm, the stateâs largest insurer, last year rocked the market by declaring it wouldnât issue new policies in California. The company dropped another bomb when it announced this week it will begin shedding coverage of 72,000 California homes and apartment buildings over the next year. Those customers are expected to end up on the FAIR Plan as well.
The state created the California FAIR Plan in the 1960s in response to insurers refusing to cover inner-city businesses following riots in Los Angelesâ Watts neighborhood. Itâs a nonprofit association of all the stateâs authorized property insurance providers, chartered to provide temporary basic insurance for properties deemed so high risk that companies refused coverage.
The FAIR plan isnât tax supported, and its bare-bones coverage â just fire and smoke damage â is paid from policy premiums that can be much more expensive than regular insurance because the risk pool is much higher.
The plan also isnât subject to the insurance regulation under Proposition 103, the check on rates voters approved in 1988. But it is regulated by the state legislature and its rates approved by the elected insurance commissioner, though not under the review of consumer groups, which can intervene on regular policies.
Roach said that the FAIR Plan has encountered the same problems as regular insurance providers in getting policy rate increases approved to provide enough revenue to cover its risk exposure. Approvals take too long and donât allow the plan to include the cost of reinsurance â which helps insurers absorb losses â or to factor in catastrophe risk models.
âOur rates are never actuarially sound because not all of our expenses are included in that ratemaking,â Roach told lawmakers. The plan must file for rate adjustments every two years, and she said its last increase requested in 2021 should have been âaround 70%â but the plan asked for 48.8%. The insurance department approved only a 15.7% increase, she testified.
At the same time, the huge increase in properties needing last-resort coverage has greatly inflated the planâs risk liability.
Instead of a glut forming, the number of houses for sale between La Jolla and Carlsbad has been decreasing lately. April will be fantastic for sellers! So will May and June, and probably July! đ
Once a home is for sale but not selling, how do you know what to do?
Both buyers and sellers can apply my List-Price Accuracy Gauge:
Once the home is on the open market, if it isâŚâŚ
Getting visitors and offers, you are within 5% of being right on price.
Getting visitors but no offers, you are 5% to 10% wrong on price.
Not getting visitors, then you are more than 10% wrong on price.
Itâs nothing personal, itâs just a simple guide to know how close the price is to being right.
The serious buyers rush out the first week to take a look, but after that itâs crickets, with only an occasional visitor. It is tough for sellers to cope, or make adjustments. But once the initial urgency has expired, you have to do something â donât just sit there.
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How quickly should sellers make adjustments? The DOM clock is ticking!
0-14 days on market â Hot property, and when the sellers have their maximum negotiating power.
15-30 days on market â Buyers get suspicious, want to pay under list.
30+ days on market â Buyers will be expecting deep discounts, or ignore it altogether.
After being unsold for two weeks, sellers will suspect that something is wrong. But it is natural to resist changing the price and instead blame everything else – especially the listing agent.
Sellers, and agents, need to shake that off and act quickly to keep the urgency higher. The first price reduction should be for at least 5% and happen in the first 15-30 days for maximum effectiveness. If the home doesnât sell in the next two weeks, then another 5% is in order, and by then the fluff is eliminated.
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Where do sellers go wrong?  They donât properly price in the negatives.
Typically sellers just pick apart the comps to convince themselves why their home is the best around, and then settle on a list price that will show everyone whoâs the boss. If you donât have any negatives, then you probably will get your price! But typically sellers are forced to come to grips with the negatives of their house, and adjust accordingly.
Do sellers have to lower their price? No, not neccesarily.
There are other alternatives:
1. Make your house easier to show. Listing agents who insist on buyers jumping several hurdles just to see the home arenât realistic about todayâs market conditions. Make the home easy to see!
2. Fix the problems.  New carpet and paint is the best thing you can do: 1) it looks clean, 2) it smells new, 3) you have to clean out your house to install it, and 4) you are managing a business transaction now â it is the logical solution. Utilize staging too.
3.  Improve the Internet presence. Have at least a 12-25 hi-res photos and a simple youtube tour.
4.  Wait for the market to catch up. If unsold for 60+ days, cancel and try again later â probably next year.
5. Reset the Days-on-Market stat.  As long as the MLS allows agents to refresh their listings, then itâs in the best interest of the seller to reset the DOM. It is a gimmick, and instead sellers should concentrate on creating real value for buyers â thatâs what will cause them to pay more.
The longer it takes to sell, the more discount the buyers will be expecting â usually about a 1% off for each week on the market. When other homes are flying off the market, the buyersâ obvious conclusion is that your price is wrong, and they load up the lowball offers.
Even if you complete one or all of the five ideas above, donât be surprised if you need to lower the price too. Keep it attractive!
Isn’t it interesting how some people know what dogs think and feel? Or are they just selling something?
âItâs always a good idea to give your dogs a dedicated bed or other comfortable perch thatâs a spot only for themâit will make them feel so adored. There are so many fabulous ones on the market, and you can have fun with them by covering them in a fabric that matches the room or doing a pop of color that stands out.
âYou can also place an upholstered ottoman at the foot of your bed which is a great way to keep your pup pampered without having to share your bed. Add in a throw to make it that much cozier and more comfortable. And if your dog has a chaise or chair they love in your home, give into it, and let that be theirs. Just cover it in a durable fabric or even slipcover it so that itâs easier to clean.â
Q. The seller told me that when he bought the property seven years ago there were drainage, soils and foundation issues. He said he has fixed everything and there have been no issues or problems during his ownership. He said because he fixed everything there is nothing to disclose to a buyer. Is that correct?
A. No. Past defects, even if repaired by the seller or others, are to be disclosed. Not only that the seller should provide all relevant information regarding the repairs to any prospective buyer but also any improvements or modifications. The information would include but not limited to the person(s) who performed the repairs (i) the property owner (ii) a licensed contractor (iii) an unlicensed tradesman (iv)all paperwork related to the repairs/improvements/modifications to the property.
In addition, the new âFlipper Law (AB 968)â which will become law July 1, 2024, means a seller of a residential one-to-four property who accepts an offer within 18 months from the date when title was transferred must make the following disclosures: 1) The seller must disclose repairs and renovations when performed by a contractor with whom the seller entered into contract; 2) the name of each contractor and their contact information; and 3) any permits obtained (or if not obtained, the contact information of the third party who can provide the permits). It happens regularly that sellers do improvements without obtaining proper permits, so double-check at the city or county to verify.
Hopefully the hubbub about realtors’ pay will cause consumers to investigate agents more thoroughly, which I’ve been encouraging for a while. Here’s one of my blog posts from 2009 – check the comment section too:
by Jim the Realtor | Jul 24, 2009 | Thinking of Buying? | 34 comments
Most buyers struggle to find a quality realtor to assist them in buying a house, and itâs the realtorsâ fault. The national, state, and local associations are so adamant about protecting the new agents and giving everyone an equal chance, that they provide no help whatsoever to the general public.
Their message?  When trying to find good help, youâre on your own.
So how do you get what you need?
Everyone tells you to ask around, get referrals from friends, go to open houses, go with a big company, go with a small company, new agent, old agent, kickbacks, etc., that it probably doesnât matter where you get a realtor, what matters is how to evaluate them.
Here are my things to look for when evaluating a realtorâs ability to help you buy a house:
1. ASK ABOUT THEIR RECENT TRACK RECORD OF SALESÂ â Letâs cut to the chase, shall we?
Has the agent been able to successfully guide others to the finish line this year? The best answer is 1-2 closings per month, if you want an agent who delivers personal service. Any agent who sells four or more per month is slamming people into houses, and those at zero, well letâs face it, they donât have anything of value to add to the equation. Get a testimonial from a past client, and/or at look at the sales theyâve done and judge them to see if they were good deals. (Iâve assisted 10 buyers with closing their sale this year).
These current market conditions are unlike any seen before. If your agent has been closing some buyer transactions this year, they must have something of value to share. Hereâs what to look for:
2. ASK THEM, âWHAT/WHERE ARE TODAYâS HOT BUYS? How they answer that will tell you just about everything you need to know. If they give you a smart-aleck answer, they probably arenât the right agent for you, only because they arenât in the game. If they can name one, at least they are looking at properties, and those are agents who can provide value â ideally your buyerâs agent is previewing property every day, in person.
3. THEY SHOULD ASK YOU QUALIFYING QUESTIONS â If they jump in the car without asking questions, their time must not be too value to them, and this isnât a business where wasting a lot of your time makes for good quality realtors.
4. THEY SHOULD KNOW ABOUT FINANCING â I guess itâs alright if they just hook you up with their lender to get pre-qualified, but if they can ask/answer the qualifying questions themselves, it might help when it comes time to structure an offer.
5. HAVE THEM SHOW YOU SOME HOUSES â Go in their car, and if they donât need a map to get around, youâve found an experienced veteran. Itâs not guaranteed that they can help, nor is it required, but itâs a good indicator. If they are pointing out specific sales/listings along the way (theirs or others), then they know the comps too, which is another great indicator.
6. EVALUATING THE PROPERTYâS CONDITION â They donât have to be a general contractor, but they should be able to educate you about the propertyâs condition. If all they do is point out that âThis is the living roomâ, theyâre not going to have much to offer in terms of added value, unless you donât know what a living room is.
7. HAVE A VENDORâS LISTÂ â Successful agents know professionals to call to fix stuff â the more thorough the list, the more problems they have encountered.
8. DO THEY CHARGE FOR THEIR SERVICE? â Ask about âtransaction feesâ, âprocessing feesâ, or âcompliance feesâ. These are junk fees used to pad their bottom line, and are not required.
9. DO THEY INSIST ON HAVING YOU SIGN A BUYER-BROKER AGREEMENT? â Pass on those, unless you got married after having one conversation too.
10. âFORECLOSURE SPECIALISTâ â Be very leery â we are all foreclosure specialists now. Any agent who tries to make it sound like they have some special âforeclosure abilityâ is blowing smoke, unless they are listing REOs and not putting them on the open market. If they donât mind breaching their fiduciary duty to their bank-seller, theyâll sell you down the river in a heartbeat.
11. SHORT SALES â I personally see 2-3 short sales every day that have already found their buyer before MLS input, and it is VERY frustrating. These agents donât care about their own reputation amongst their peers, and that alone should make you wonder.
12. OFF-THE-GRID â Ask about what agents can do to find properties that arenât on the regular websites. Any positive response would be a good indicator, and any examples of closing one would be even better.
If they can get through those questions and you still like them, you found a good agent!
NEW AGENTS â A new agentâs zeal and availability can really help buyers who donât have the time or willingness to search for properties themselves. Want somebody to do the legwork for you? Put a new, hungry agent on it, but there may be some struggle clinching the deal if there are competing offers.
OUT-OF-COUNTY AGENTS â Youâll be doing all the work yourself, so your own proficiency in being a realtor needs to be up to par.
RELATIVES â Many deals crash and burn, and hearts are broken over houses. Want a relative to help you?  Make sure that youâll accept never wanting to talk to them if they cost you the right house, at the right price.
âGREAT TIME TO BUYâ â If you hear that catchy phrase, just walk away.
The inventory of quality homes at good prices is EXTREMELY LOW, causing the buying experience to be full of frustration and disappointment. You can look for weeks or months without seeing anything attractive, so I donât know why any agent would call that a great time.
REALTOR TEAMS â No problem, but donât interview the big dog and then get passed off to the assistant without asking the same questions. You want to be clear about who is helping you, and what you can count on. In my case, I may have Richard or another KR realtor help me on occasion, but Iâm still the main person in charge, and am responsible for your success.
