86% of Homebuyers Don’t Know What a CLUE Report is – Do You Have a Clue?
A CLUE (Comprehensive Loss Underwriting Exchange) report provides a wide array of data of claims on a given property - the insurance companies involved, the type of policy, whether the loss was related to a named catastrophe (hurricane, etc.), location of the claim within the domicile or property, the amount paid by the insurance company and the cause of the loss. The report covers the most recent seven-year period.
If the home that you are preparing to buy has a recent history of insurance claims of a serious nature (structural problems, asbestos, mold, etc.), insurance companies may be unwilling to offer the prospective buyer a homeowner’s insurance policy. More commonly, they may charge an exorbitant rate for a property they consider to be highly problematic, expecting that future claims are likely to be filed by the new owners.
Today, insurance contingencies are needed in contracts, as buyers want to be able to retrieve their earnest money (usually 10% at contract signing) if there is a serious insurance issue. A smart buyer should want to know a home’s history for other reasons as well. For example, mold or asbestos can cause serious health problems.
The irony, of course, is that the buyer, through no fault of his own, can be denied a policy or be required to pay a punitive rate, even though he or she never even lived in the house, and did nothing wrong. Additionally, a history that includes many claims on minor issues can also impact the decisions of insurance companies. Therefore, an educated buyer should apply for insurance coverage immediately after signing the contract (the rescission period). This is the time span (usually about a week) after the contract signing, but before the deposit is given. Further, it’s in the buyer’s interest to uncover any problems quickly, before getting too far into the transaction, and the associated costs involved.
But it is only the property owner (seller) who can request the CLUE Report. The buyer should, therefore, request that the seller order the report, and that the buyer be given access to it. Reports for a primary residence can be ordered on the internet from “ChoicePoint,” the company that compiles them. Reports for vacation homes must be requested by mail.
Interestingly, according to a study by “InsuranceQuotes,” 86% of homebuyers are not aware that a home’s claims history, in part, determines the homeowner’s insurance rate, even if you never lived in it.
Full disclosure is always the best and wisest path forward for a homebuyer.