Life seems to get more complicated every year and this is particularly evident with real estate transactions. You didn't even really need an insurance contingency in a purchase contract 20 years ago. Of course, the lender was concerned with making sure there was a policy in place before funding, but buyers and sellers didn't think much about it.
Times Are Changing
Insurers have gotten skittish since then due to issues like mold and asbestos. Buyers can no longer count on getting homeowner's coverage as a matter of course. You might find that the home you want is uninsurable or you might have to take out high-cost coverage if the home has a history of complaints, especially with high-risk issues like mold.
Now we need insurance contingencies in contracts. Buyers want to be able to get their earnest money back if there's an insurance surprise. not to mention that they don't want to unsuspectingly move into a home with a major problem that could cause health issues.
The difficult part of the equation is that the root of insurance problems can be as simple as an owner who likes to file insurance claims. She might have filed more claims over the years than insurers like to see...and the buyer ends up being punished for it.
This is where a C.L.U.E. report can come in very handy. It provides you with the insurance history of a property before you take decisive steps to purchase.
Information Provided by a C.L.U.E. Report
A Comprehensive Loss Underwriting Exchange (C.L.U.E.) report includes the dates of any claims and the insurance companies involved.
It also tells you the type of policy or policies that were in effect and whether the loss was related to a named catastrophe such as a hurricane. It cites the location of the loss—was it on or off property?—as well as the amount paid and the cause of the loss.
Time Periods Covered by a C.L.U.E. Report
C.L.U.E. reports go back five years into the history of a property. It's standard industry practice to purge losses over five years old.
Who Can Order the Report
Only the owner of a property or an insurer can request a C.L.U.E. report. The request must come from the property seller/owner if you're representing the buyer.
The Importance of the Report in a Real Estate Transaction
A C.L.U.E. report can provide loss information that might cause a buyer to reconsider the purchase of a home. If there had been a loss paid due to water damage and mold, the buyer might pass on the deal because it could be expensive or very difficult to get insurance on the property down the road.
C.L.U.E. Report Cost
Consumers are entitled to one free C.L.U.E. report each year. Additional reports can be ordered at the cost of $19.95 each. Most real estate professionals would recommend this expense to their buyers or even sellers considering the importance of the information it provides.
The Advantage to Sellers
It's just one more way to give potential buyers the confidence to proceed with a purchase if your seller client has this document showing a clean bill of insurance health for his home. The report might even reveal issues the seller was not aware of if he purchased the home within the last five years and did not order a C.L.U.E. report at the time.
The Advantage to Buyers and Their Agents
The extra protection afforded to your buyer for the small cost of the report is invaluable. Your errors and omissions insurance carrier will love you for it, too.
Act Sooner, Not Later
Get the C.L.U.E. report and apply for insurance coverage as early in the process as possible. Every buyer should be careful to apply for coverage very quickly after a contract is signed by both parties.
The goal is to get an approval or receive the bad news before getting too far into the transaction and incurring costs.