Disclaimer: This information is not intended as an offer to sell, or the solicitation of an offer to buy, a franchise. It is for informational purposes only. We will not offer you a franchise unless we have complied with applicable pre-sale registration and disclosure documents in your state. Currently, the following states regulate the offer and sale of franchises: California, Hawaii, Illinois, Indiana, Maryland, Michigan, Minnesota, New York, North Dakota, Rhode Island, South Dakota, Virginia, Washington, and Wisconsin. Within the U.S.A., we offer franchises solely by means of our Franchise Disclosure Document (FDD). There are also countries outside the U.S.A. that have laws governing the offer and sale of franchises. If you are a resident of one of these states or countries, we will not offer you a franchise unless and until we have complied with pre-sale registration and disclosure requirements that apply in your jurisdiction.
Home Replacement Cost vs. Market Value: What’s the Difference?
Whenever you purchase a new homeowner’s policy or want to evaluate coverage on your current policy, you’ll always want to know how to value your home to ensure you are covered properly. The problem faced by consumers is there are numerous ways to determine your home’s value. Depending on who you ask or where you look these numbers can be all over the place. That begs the question, “What’s the difference, and which one is right”.
If you have ever gone through the process of purchasing a home, you know there are a lot of moving parts involved. There is an endless number of combinations of ways that the home buying process can play out, all involving different logistical issues. Because of this, the home-buying process has become very customizable to fit the needs of nearly anyone who wants to sell or purchase a home.
For instance, what happens if someone is selling their home, but needs to continue to live in the home for a short time after the ideal closing date? This is the scenario where leaseback agreements usually come into play. While agreeing to a leaseback can come with benefits such as convenience and negotiating power, it usually makes the process of securing homeowners insurance a little trickier.
What is a Leaseback?
Let’s say you are building your dream home, and you plan to sell your current home before moving in. Your new home will be completed and ready to move in on February 1st of the coming year. You find a qualified buyer who falls in love with your current home and they are prepared to purchase your home with a closing date of January 26th. The timing seems like it is working perfectly, but you get news from the builder that your new home will not be ready to move in until March 1st. Now, there is a month gap between the day you will be selling your current home and the day you move into your new home. You can propose a leaseback, which will allow you to sell the home and continue to live in it for an agreed-upon amount of time before handing the keys over to the buyer. Leaseback Agreements such as this one can be extremely useful in multiple scenarios, but in any instance, it will involve the seller of the home continuing to occupy the home as a tenant after the closing date where ownership is transferred to the buyer.
Leasebacks and Home Insurance
Typically, property insurance companies will rate insurance policies differently depending if the home is being occupied by the owner or a tenant. In most cases, standard home insurance policies are created under the assumption that the owner is living in the home. This often creates confusion when there is a leaseback because the ownership of the home is being transferred to a new buyer, but the original owner is still living there. If you ever find yourself shopping for insurance on a home that is being leased back to the prior owner, you want to be very clear with your agent when you let them know that this is going on. Some insurance companies do not play well with people who are leasing back, and failure to mention this detail to your agent can lead to paying for a policy that could potentially deny your claims.
What are the Options?
When it comes to insuring a home that is being leased back to the prior owner, there are a couple of ways of getting insurance taken care of.
Find a company that is fine with the leaseback: Some insurance companies are totally fine with getting a homeowners policy set up for the new owner even though they will not be occupying the home immediately. Most insurance companies will only do this if the leaseback is less than a month long. If you can find a company that will accept this, it is likely the most convenient option.
Get a Landlord Policy: This is the way most people end up insuring a home that was purchased with a leaseback agreement. Since the prior owner is technically a tenant in the home, the new owner will nearly always have the option to insure the home as a rental dwelling during the time of the leaseback. the new owner needs to get in touch with their insurance agent to get a homeowners policy and cancel the landlord policy. This method has more moving parts, but in many instances, it may be the only option.
Leaseback agreements can cause some level of confusion when it comes to homeowners insurance, so the simplest way to be sure the home is covered properly is to be sure that your insurance agent knows the situation. With the home being occupied by a tenant after the closing, your agent may choose to insure the home as a rental dwelling temporarily, or they may find a normal homeowners insurance policy with some level of flexibility for a client with a short leaseback.
The contents of this article are meant as general information to help you understand personal lines insurance and not specific to a particular policy. Policies, coverages and discounts can vary by state and insurance carrier. To understand your coverage, you should speak directly with a licensed insurance agent or read your full policy contract. Call your agent or contact us at (833) 779-4090.
Home insurance premiums have been on the rise in recent years. If you’ve noticed your rates going up, you’re not alone. Many homeowners are seeing increases, even if they haven’t filed a claim. Rates can increase for several reasons. Some are personal, like expired discounts or prior claims.
