CLUE Reports~ Know the Facts of the House Before you Buy
As a Real Estate Professional, I have always advised my clients of the hazards of "Lead-Based Paint" and more recently, "Mold". While these issues continue to be potential deal-breakers that must be dealt with, We now have another big issue that has recently entered the scene: CLUE Reports. If you aren't familiar with these reports or how they can throw a deal off track, here is the scoop.
CLUE - Is an acronym for "Comprehensive Loss Underwriting Exchange" - Which is a National Insurance industry database with more than 40 million personal property claims. A CLUE report is the equivalent of a credit report for a house, (Yes that is right) and this examines all claims reported to the insurance company for a given property over a five-year period, including Water Damage, Fires, and the scary "M" Word which is MOLD. Reports show the date of loss, type of loss, and amounts paid out.
Traditionally, the insurability of a property was a topic left to the insurance company. But now real estate practitioners and their clients also must pay close attention to a home's record of insurance claims to make sure secrets of the property's past won't come back to haunt them.
Insurance Risks Uncovered
CLUE reports also let potential buyers know about Water Damage, Mold, and other Issues that can make it difficult or even prohibitively expensive to insure the home. Without viewing the report, big trouble may be brewing for buyers who wait until the day before closing - or even the day of closing - to get a paid insurance receipt.
Let's say the property closes, ownership is transferred, the buyers get the keys, and the real estate practitioner gets paid. Life is good. But then in about two weeks, the Transaction turns nasty, if the buyers get a letter from their insurance company rescinding the policy due to a previous claim. Most mortgage documents implicitly state that a property must remain insured. If homeowners can't find insurance elsewhere, they can be forced into paying the mortgage company's premium insurance rates, or worse, foreclosing on the home because they can't afford the hefty payments. Then of course the law suits soon follow. Buyers will sue the Sellers for non-disclosure, then The Home Inspection Company and even the Realtor is he or she did not insist upon obtaining an inspection or report for their client.
I believe it's only a matter of time before every state will have included CLUE reports as a mandatory part of their seller disclosure documents. Mortgage companies already are starting to order these reports as standard procedure because they don't want to be stuck with an uninsurable property and so many deals are blowing up over insurance issues.
How to Help Your Clients: Until CLUE reports become a standard Disclosure in any home sale, you don't want your clients to become a test case. Kathy Hyatt explains how you can help:
When Working With Sellers: Ask sellers to order their home's CLUE report before listing the property. This will make them aware of potential problems in selling the home and will give them a chance to correct any wrong information in the report. You can order a report online through ChoiceTrust, a unit of Alpharetta, Ga.-based data provider ChoicePoint Asset Co.
- A clean CLUE report can be used as a selling point. Make sure potential buyers know that it's available for them to view.
- Under the Fair and Accurate Credit Transactions Act of 2003, property owners can order one free report every year.
When Working With Buyers:
- Ask the seller to present you with the home's CLUE report. Like a credit report, CLUE reports only may be obtained by the current property owner.
- Make the purchase contingent on viewing a CLUE report, or on the buyer obtaining affordable insurance. Check with your state REALTOR® association or real estate commission to see if it offers a rider or an addendum that you can include with the contract.
- Ask the buyer to apply for insurance immediately after a signed contract.
- Educate yourself and your clients. Go to ChoiceTrust's CLUE Reports page to view a sample CLUE report, to learn how to read reports, and to download a brochure for homebuyers or call Kathy Hyatt at ERA Ace Realty.
Real estate practitioners should take CLUE reports very seriously, especially at a time when insurability issues are so often snagging sales. Make it a habit to tell buyers to view the CLUE report for the homes they're interested in buying, and educate them about the risks of not doing so. It will reduce your liability as the real estate salesperson and help to avoid property or insurance problems down the road and isn't that what we all want!! Have a Real Estate question; call Kathy Hyatt at 954-347-0244