Luxury home asset protection issues for physicians

vAsset protection done right includes being informed about current risks and market conditions and managing those risks proactively. Here is what luxury homeowners, buyers, and sellers need to know about construction costs, closing delays, insurance, and why you are probably under-insured for the loss or damage of your home.

The cost of construction materials

Material prices are way up and it’s not just steel and lumber, but includes things like millwork (cabinets), plumbing fixtures, windows, and even paint. The cost increase is due to a combination of COVID-related production delays combined with massive demand from the housing boom, people remodeling homes to better suit their needs for homeworking and incidents like the Texas freeze in February 2021, which damaged and flooded thousands of homes and businesses creating an unusually high demand for every material.

Significant construction delays

Builders and homeowners all over the U.S. are experiencing delays due to both material and labor shortages. If you are waiting for a home to be completed before a move or are planning to sell your current home, make sure you have flexibility in occupying your current residence or a backup plan to avoid an emergency temporary move. Rental homes in some desirable areas are either hard to get for a short term or, if they are available, are coming at a premium price.

Possible homeowners insurance issues

Insurance expert David Moore and I were recently having a conversation about this issue and he made an important point: the dwelling replacement coverage you have in place right now may be inadequate in two key areas. First, your “guaranteed replacement cost” (GRC) should be reviewed to see if the dollar amount is realistic and adequate to cover the actual cost of rebuilding it after a freeze, fire, or hurricane, and if you have a flood insurance policy or not. In some cases, the number is based on the purchase price of your home, in others it may be based only on your loan amount. Either way, given both increased materials costs and the massive appreciation (bubble?) in home prices in some states, there’s a good chance you are underinsured.

Second your “loss of use coverage” should be immediately reexamined. Moore sad in most cases it averages about 20% of the value of the home. For instance, if you live in a $500K home you would have up to $100K in coverage for alternate housing and all associated expenses (e.g. moving, finding shelter for the person in a guest house or mother in-law suite, upgrading internet for home working, etc.) during the time your home is being rebuilt. That may or may not be adequate given current market conditions and the additional demand ahead due to seasonal storm damage in certain parts of the country. Moore cautioned that your coverage is what your policy says it is, so check on that now while you can. In some cases, that number may be below 20% if that’s what a particular carrier offers or if an agent reduced the coverage to help lower your premiums.

Delays in closing on real estate

A client recently contacted me for help because she stood to lose $45K in earnest money on a home purchase because she couldn’t close on the agreed upon closing date. Why? Because her bank was unable to complete their appraisal within the 30 days they promised, “due to covid delays”. The buyer asked for an extension and the seller refused, putting her earnest money at risk and requiring legal intervention.

I ran this by real estate law expert Laura Bramnick, JD in Scottsdale, AZ, and she confirmed that this situation is unfortunately common right now. Your agent or the real estate attorney you are working with on the sale or purchase of a home should be aware of this and should be proactively planning for any delays with specific written COVID-19 Addendum clauses in the relevant documents. The Arizona Realtors Association has a specific COVID addendum form, your state likely has a something similar. These clauses address delays due to issues like quarantines, government delays and shutdowns, allow both automatic and agreed upon extensions of the closing date, and the specific agreement of the parties that earnest money is returned to the buyer if the sale can’t be closed due to any of the specified delays.

About t_{he Author}

_{Ike Devji, JD, has practiced law exclusively in the areas of asset protection, risk management and wealth preservation for the last 16 years. He helps protect a national client base with more than $5 billion in personal assets, including several thousand physicians. He is a contributing author to multiple books for physicians and a frequent medical conference speaker and CME presenter. Learn more at www.ProAssetProtection.com.}