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Q & A With America’s Real Estate Professor: Condo Insurance

Zillow • Feb 5, 2013 at 4:15 PM

By Leonard Baron

Condominium Insurance Issue

Q. I inherited a town home free and clear and the HOA covers insurance for the property. My insurance agent says I need an interior HO-6 condominium policy, but since it’s older inside and paid off I’m not too worried about the interior. What do you think? Chad B., Allentown, PA

A. I have a clear answer for you here that should help. One of the biggest risks that you have with attached properties is a water pipe breaking and flooding the adjacent units. There are also fire and smoke issues in case you or your tenant causes a fire. If either of these occur and cause damages to a neighbor’s property, they’re probably going to look to you to reimburse them for their costs, which could easily be tens of thousand of dollars. Most likely, the HOA is going to tell you it’s your problem, not theirs.

For about $250 per year you can have an interior HO-6 policy that should protect you and cover the neighbor’s damages in case either of those issues should occur. And, I would strongly suggest you keep that policy in place. Also, make sure to get all the current HOA insurance policy(ies) documents and sit down with your insurance agent to make sure there are no other gaps in your coverage. You’ll be glad you did in case something happens.

Buying a Flipped House

Q. I am in contract to purchase a house that was purchased at foreclosure, renovated and now it is being flipped to me. It looks like they did a really nice job and the price is in line with comparables, but the seller/contractor won’t give me any disclosures and is selling the property AS IS. Tina B., Sarasota, FL

A. You always need to be cautious when purchasing a property AS IS. Your home inspector is looking for obvious issues, but he may not find everything. Unfortunately, most buyers brush aside the “AS IS” label and really pay full retail price for a property that should be discounted due to no warranty. In most states the seller has to disclose any material issues regardless, but if they just bought it, they can always claim they didn’t know.

Since it is being flipped, I’d make sure you have a full understanding of what work was done on the property and make sure they disclose that in writing. You also want to see the work orders, permits, and insurance policies for all the work that was done. If they can’t or will not provide that, you will have a hard time knowing whether the renovation work was done properly, especially since it is now behind the walls. That would be pretty important issue to most buyers, and you should carefully consider whether you should complete the deal if you do not have enough information.

Lastly, make sure to adequately review all the title information, title insurance and schedule of exclusions and disclosures like NHD Reports, insurance CLUE reports, plus all disclosures from the listing agent and your real estate agent. Good luck.

Leonard Baron, MBA, is America’s Real Estate Professor® - his unbiased, neutral and inexpensive “Real Estate Ownership, Investment and Due Diligence 101” textbook teaches real estate owners how to make smart and safe purchase decisions. He is a San Diego State University Lecturer, blogs at Zillow.com, and loves kicking the tires of a good piece of dirt! Email Your Questions to: Leonard@ProfessorBaron.com.


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