Renovations: Cost of Insurance?
We are set to close on the purchase of a brownstone in Ft. Greene later this month, and have to obtain Homeowner’s Insurance as a condition to closing. We will be renovating the building before moving in (new plumbing, electric, new kitchen) and for this reason, we are having a hard time finding a carrier….
We are set to close on the purchase of a brownstone in Ft. Greene later this month, and have to obtain Homeowner’s Insurance as a condition to closing. We will be renovating the building before moving in (new plumbing, electric, new kitchen) and for this reason, we are having a hard time finding a carrier. Allstate and Liberty Mutual, for example, would only cover us post renovation. Those carriers we did find (e.g., Firemans) will run around $10K for a combined homeowners and builder’s risk policy. One broker mentioned that many homeowners do not disclose the extent of renovations and just get a homeowner’s policy (around $3K). However, then they are not covered in case something goes wrong in the home. Not a risk we want to take, but we’re just a little taken back at the cost of the combined policies.
Can someone please advise if this sounds reasonable? If you did a renovation, how did you manage builder’s risk? Is builder’s risk something usually buried in the the general contractor fees or is it typically paid by the owner?
It goes without saying that we have not selected a general contractor yet.
We went with Fireman’s for a 2005-06 reno. At that time the homeowner’s/builder’s combi was about $6600, but it varies based in part on the replacement cost of the home (rebuilding from scratch). Talk to the broker about a higher deductible. Also, we were able to convert to a regular homeowner’s before everything was done. The above post is correct, you only pay for builder’s risk for the time you need it — not stuck for a whole year if you finish sooner.
Finally, if this is a 2-fam, you can set off a portion of the builder’s risk against rental income.
Is there any way you can move in first, at least for a month or two if the building is habitable? It’s a lot cheaper to get a homeowners policy, then have it endorsed for the renovation. We went that route – bought knowing we were going to renovate, lived in for six months while we lined up architectural plans, contractors and permits, and Chubb endorsed the policy to cover the renovation when we moved out. We reduced our contents coverage (most went into storage) and took a $5K deductible for the duration of the reno. Chubb also added on contents and liability coverage for our sublet. The total cost of the endorsement was around $2700/year. Chubb did periodic inspections to check progress, and switched the policy back to regular homeowners when we were back in and only cosmetic work (painting, floors) had to be done. We did get a pro-rata refund on the additional premium.
hmmm … i was hoping someone would say the cost was lower, but at least i know we’re not completely off target with the quotes we’re getting. the non-occupancy definitely seems to be a sticking point for a lot of carriers. haven’t tried chubb yet (or sylvia from state farm) but will try them both tomorrow.
building equity – so far all three of the quotes i’ve received have a 95-100% “minimum premium earned” so you’re right, we wouldn’t get our money back. on top of this, you can extend one time (for one month) but otherwise you have to buy the policy in a minimum three-month increments … re: allstate, they wouldn’t look at our deal because of the non-occupancy but they did have attractive rates. it just wasn’t an option since their replacement cost was too low relative to the cost of the home.
We’ve done a number of brownstone renovations for ourselves in Harlem and always carried builder’s risk. If you were to have a catastrophic event, i.e. a fire, during renovation, you’d never be able to make a claim against a homeowners policy.
I’d caution you to stay away from Allstate. We just did a big renovation of a fire damaged home in Greenpoint and the owner really struggled with getting their claim satisfied through Allstate. In talking to a handful of insurance brokers I know, I’ve heard that Allstate and State Farm are notorious for offering low rates and then low balling on what they are willing to pay when a claim is filed. Also, be careful about assuming that you can get premium back on builder’s risk if you finish your project in 6 months. I believe a lot of these policies are what they call “fully earned,” which means you CANNOT get a prorata refund if you are done in less than a year. If you are not set on an insurer yet, we’ve had really good experiences with a broker named Fabricant & Fabricant, who handles most all of our insurance on the buildings we own. I deal mostly with Michael Misson there, 516-621-9000. Feel free to drop my name.
And if you are looking for someone to help with the design and buildout of your brownstone renovation, give me a buzz. We can handle all aspects of your project and would love the chance to do a walk through with you.
Michael Vinocur
Building Equity LLC
mvinocur@buildingequitynyc.com
144 E44th Street, 5th Floor
New York, NY 10017
631-680-9368
We had this problem on our recent deal in BHill. We ended up with Chubb as they were the only insurer we could find that would 1) insure a townhouse in Brooklyn and 2) cover us during a renovation. Your $10k sounds about right. I know we get a 25-35% surcharge for non-occupancy during the renovation. In order to get the policy done we had to switch all of our other home and car policies over to Chubb as well. Finally we have been required to install a temporary central station alarm system during the renovation process.
Check with Sylvia at the Fulton Ave branch of State farm
I did this with Chubb many years ago and don’t remeber it to be all that much more expensive BUT, Chubb is NOW a lot more expensive than many others for regular coverage.
yes, it will be great to switch over to a “regular” homeowner’s policy once the renovation is done. two of the three quotes i received allowed for a payment plan but provide a “paid” receipt. unfortunately, they were also the two more expensive quotes ($10K).
i failed to ask in my initial post, assuming you got builder’s risk insurance, who was your carrier? even among the few carriers that specialize in builder’s risk, it seems many of them are interested in “ground up” projects only (e.g., hartford, traveler’s) and others are non-admitted and more expensive (e.g., lloyds, scottsdale). i assumed there would be more options since people renovate brownstones all the time ….
Re the cost, keep in mind that you can switch to a regular homeowners’ policy as soon as the reno is done. So if it takes you six months, it will cost you $5k instead of $10k. I think many insurance companies will supply you with a proof of payment of a year (needed for closing) even if you are paying once a month, quarter, etc. Make sure you know what the extra coverage covers before you pay up for construction insurance though.