The Bullies on the Block

With the ongoing turmoil in the California insurance industry, some companies have started requiring a “4-point inspection" prior to issuing a binder. Going forward, these inspections may be mandatory when applying for insurance OR when renewing existing policies. (Ouch!). ​

Given that much of our local housing stock is 100 years of age (at least), these inspections will be shaking things up more than just a bit, so take heed; insurance companies have become the bullies on the block and they're not playing around . . . .

By way of background, 4-point inspections have actually been around for many years, originally starting in hurricane-prone Florida in the 1990s, and have since become common in some southern states as well. But they are new to California – so let’s take a moment to learn more about them.

For starters, a 4-point inspection is NOT a full home inspection. It covers roofing, plumbing, electrical, and HVAC exclusively, while a full home inspection will cover many more systems, and in greater detail. Make no mistake, a 4-point inspection is tailored for the insurance industry specifically, with a narrow focus on materials, lifespan, and significant hazards.

Please note: for those who are either buying or selling a home, the 4-point inspection is NOT a substitute for a full home inspection report. However, in some cases, an insurer can use a recent home inspection report in place of a 4-point inspection because it's far more detailed.

What is Included in a 4-point Inspection?

The document will outline basic information about the age, type, and materials used in each particular system (roof, plumbing, electrical and HVAC) and identify any shortcomings. For example, the roofing section will include the type of roof (composition shingle), its estimated age (15 years), and any significant defects found (failed gutters), etc. Maintenance items or upgrades are generally not included in this report, nor are they quantified.

As it explained to us at our regular Tuesday morning COMPASS meeting, "Most insurance companies will likely reject knob & tube wiring, suspect electrical panels, wood-shake roofs, and lead pipes - just for starters." They'll also systematically reject most homes in a classified "fire zone" (that's EVERYTHING in the hills, people), as well as homes with overhanging trees. Moreover, if there's been a claim on the property - especially a water/flood claim - it's going to make the house both difficult and expensive to insure. In many cases, the California Fair Plan is the insurer of last resort and it now carries much of the high-risk real estate in California. (It ain't great, but it's better than nothing.)
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What can concerned Homeowners do about it? Not much.

But if you are in the market, shop for insurance BEFORE putting in your offer - especially if the house is in the hills. The premiums may surprise you, and like it or not, we will ALL be paying more to keep insurance companies in the state of California, WHETHER OR NOT you've ever made a claim on your property! Remember, your insurance contract is renewed on an annual basis. Therefore, companies can increase the rate, or simply refuse to renew at their discretion when the contract expires. And if you're carrying a loan on your property - as most of us are - the lender will absolutely require homeowners' insurance.

This is my long way of saying that if you are planning on selling your home in the not-too-distant future, please consider updating your failing systems. As insurance gets harder to obtain, these outdated items will be coming up for negotiation to be sure, and in several cases, they must be fixed BEFORE the house can close escrow. Insurance companies aren't backing down.

How can we help you?

(A special thank you to Paul Barraza for JMC inspections for this timely reminder.)