Fox5 GOOD DAY ATLANTA 4/17:
Home Value Insurance
A Bad Product for a Bad Market
by John Adams
Metro Atlantans have learned over the past few years that housing values don’t always grow. Many homeowners today wish they had some way to turn the clock back and capture the maximum value their home ever had.
There’s no setting back the clock, but a new insurance product promises consumers some peace of mind by protecting against a loss in home value due to a declining local housing market. Home Value Protection was rolled out in Ohio last fall, and the company behind it has moved into the Georgia market.
Our own Fox5 Real Estate Contributor John Adams is here to spell it all out.
Q: John, what's this insurance policy all about?
A: OK, let's be honest. The appeal of home-value insurance is obvious, the devil is in the policy’s details, and those factors make Home Value Protection the worst investment I have seen lately..
I know that insurance is not really an investment, but some people think of it that way, and this is simply ,my opinion of a complete waste of your money.
Q: Every home owner wants to lock in past gains or prevent future loss. Whats so bad about a chance to protect our single largest investment.
A: As with any insurance policy, the devil is in the details.
Here’s how the policy works:
Homeowners pay a monthly premium to lock in today’s value of their home for the next 10 years, protecting the current value against future declines in their local market. If the home was purchased within the past 12 months, the “protected value” is the purchase price; if it was purchased more than a year ago, the insurer does an appraisal based on current local market conditions. If not, a current appraisal reflects the bottom of the market we are experienceing right now.
If the home is sold at a loss during the protected period, the consumer gets the lesser of the actual loss suffered on the home or the percentage decline in the Case-Shiller Home Price Index for their zip code.
Q: What is the PROTECTED PERIOD?
A: If you sell your house during the first couple years from now, you are limited in the amount you can collect. This is designed to allow a full economic recovery to boost the value of your house, a recovery that has already begun.
Q: So what happens if you sell your house at a loss after two years?
A: You can't just dump it and expect the insurance to cover an oversized loss, and can’t let a home deteriorate to where it’s worth much less than surrounding homes, but have insurance make up for their negligence.
The maximum protected loss is 25% of the home's original value, no matter what you end up selling for.
Q: Who will be selling this home value insurance?
A: The companies involved hope that real estate agents will push it as a smart option to add to their regular home owners insurance.
Q: Are there other limitations on the policy?
A: Yes. Even if you sell at a less and even if the loss is less than 25 % of the value at the time the policy was originated, you are also limited by the drop, if any, in the CASE SHILLER Home Price Index for the local market, whatever that may be.
Q: Is that a problem?
A: In my mind, yes. The CASE SHILLER INDEX in Atlanta only measures a small cross section of the market, and is notoriously wrong in Georgia much of the time.
Q: So, what's the bottom line?
A: I understand that the idea of HOME VALUE INSURANCE is appealing, especially when it looks like we are in a declining real estate market with no light at the end of the tunnel, but I want everyone to know, and this is simply my opinion, that we are AT OR NEAR the bottom of this recession, and that home values will likely start to rise next year.
HOME VALUE INSURANCE is a waste of money, and your dollars are better spent making your home more livable or more enjoyable right now.
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