Underwriting the Dream Home

Whether it’s called custom, upscale, mansion or high-value, a dream home requires special handling from property insurers. High-value homes represent a growing segment of the more than 81 million single-family homes in the U.S. and Canada. These special homes are on the books of almost every homeowners insurer, and some property companies even specialize in insuring these high-end residences.

Research reveals a complex real estate market today, with an increasing number of high-value home markets emerging in most large metro areas and resort areas. These emerging markets, nearly 1,500 in the U.S. and Canada, are occurring rapidly. In the East, they include areas such as Essex Falls and Short Hills, N.J., Gladwyne, Penn., Darien, Conn., Shelburbe, Vt., Cushing, Me., and areas of Brooklyn, N.Y. A number of coastal, mountain and island locations are also among these emerging markets.

Not only are more high-valued markets emerging, but the number of high-value homes being built is increasing dramatically. Just a few months ago, high-value dwellings in established communities were considered low risk investments with little chance of loss in value when compared to the stocks and bonds markets. The greater demand for high-value homes is leading many developers to build large, lavish homes on speculation.

Defining high-value homes
It is difficult to offer a concrete definition of a high-value home, as each carrier may define it differently. However, Marshall & Swift/Boeckh (MS/B) defines a high-value home as one that typically exceeds 4,000 or 4,500 square feet of total living area and is often comprised of a main residence and one or more wings. Practically all high-value dwellings have a unique shape and elaborate roof structures. Depending on the location of the home, vintage, size of home, and overall uniqueness, these homes have reconstruction costs exceeding $650,000 for more modern styles and $900,000 for turn-of-the century structures.

According to the 2000 U.S. Census, approximately 314,000 owner-occupied single-family homes nationwide were worth more than $1 million. (Of this total, about 40 percent are located in California.) However, market value is not a complete definition of a high-value home, because market value does not directly correlate to reconstruction cost in all markets.

When trying to determine if a residence is high-value, it is important to keep in mind what is typical in the “main street” residences for the area and vintage of the home. Some feature or finish that may be typical in one location could be a strong indicator of high-value home in another location. For example, clay tile roofing is very typical for a home in Southern California, but if found on a home in the northeast it would indicate the possibility of a high-value home.

The following list presents some items that may be found in high-value homes. It is important to remember that any one item alone may not indicate high-value, but the presence of several items could indicate high-value.
• A unique residence designed specifically for an individual owner.
• Special purpose rooms designed and decorated for specific activities other than eating, sleeping, bathing or typical family relaxation. Conservatories and libraries are good examples.
• Decorative, steeply pitched roofs with many ridge lines, valleys and/or turrets.
• Atypical roofing materials, such as slate or tile, or anything other then asphalt/fiberglass or wood shakes/shingles.
• Exceptionally large dwellings.
• Multiple interior staircases; curved or floating staircases.
• Ornamental entranceway, possibly with massive columns, balconies or porticos.
• Interior courtyards.
• Uniquely shaped rooms (round, hexagon, etc.).
• High or multiple ceiling heights.
• High grade commercial or restaurant quality kitchen appliances.
• More than one kitchen.

The growth in the high-value marketplace increases the likelihood that an underwriter will be asked to provide coverage for a dream home. By understanding the unique building characteristics and the high quality of interior and exterior finishes found in high-value homes, carriers can underwrite the risk properly and assign it to the proper risk classification, coverage form and premium structure.

Mike Samsa, senior product manager at Marshall & Swift/Boeckh, has been with the company since 1975. He is a member of the National Association of Home Builders; Wisconsin Builder’s Association; Construction Specifications Institute; Associated General Contractors of America; and Metropolitan Builder’s Association of Greater Milwaukee. For more information visit www.msbinfo.com.

Topics USA Underwriting Homeowners