Why Homeowners Insurance costs so much

By Tricia Zwirner

Homeowners insurance premiums have been increasing annually since the pandemic. In fact, the years 2019 through 2023 were the costliest for insurers ever….and it doesn’t look like 2024 will be any different.

Prior to 2019, the three most common contributors to the increase of a homeowners policy premium were the policy’s claim history, the property’s location, and the home’s replacement cost- all factors somewhat within the owner’s control. Fast forward to post-2019 when the top three contributors shifted out of the homeowner’s control to the pandemic, inflation and Mother Nature.

The Pandemic

The COVID-19 pandemic has not directly caused homeowners' premium rates to increase. However, there are a few factors indirectly related to the pandemic that have impacted homeowners' insurance rates:

1. Economic impact: The pandemic has had widespread economic effects, including job losses and reduced incomes for many individuals. As a result, some insurance companies may have experienced an increase in policy cancellations or non-renewals, which can lead to higher premiums for those who maintain coverage since premiums are spread amongst insureds.

2. Changes in property usage: With more people working from home and spending increased time indoors, there have been changes in the way properties are used. For example, homeowners may have set up home offices or increased the use of home appliances and electronics, which has increased the number of property damage and/or liability claims. Many insurance companies have experienced increased claim frequency and severity and have adjusted rates accordingly.

3. Supply chain disruptions: The pandemic has caused disruptions in supply chains worldwide, affecting the availability and cost of building materials, repair services, and replacement items. These disruptions have led to increased costs for insurers, which are reflected in higher premium rates.

Inflation

Inflation refers to the general increase in prices and the decrease in the purchasing power of money over time. Here's how inflation has impacted homeowners' insurance premiums:

1. Rising construction costs: Inflation has led to higher costs for construction materials, labor, and other expenses related to repairing or rebuilding a home. As a result, insurance companies have increased premiums to account for the increased replacement cost value of the property.

2. Increased liability claim costs: Inflation can also affect the cost of liability claims. Medical expenses, legal fees, and other costs associated with liability claims have risen due to inflation. Insurance companies have adjusted premiums to cover the potential higher costs/frequency of liability claims.

3. Insurance company expenses: Inflation has impacted the operating costs of insurance companies, including administrative expenses, employee salaries, and other overhead costs. To compensate for these increased expenses, insurance companies have raised premiums.

Natural Disasters

Mother Nature has had the most significant impact on homeowners' insurance premiums due to the risks associated with natural disasters and severe weather events. Here's how Mother Nature has affected homeowners' insurance premiums:

1. Natural disasters: Events such as hurricanes, tornadoes, wildfires, earthquakes, and floods can cause extensive damage to homes and properties. Insurance companies factor in the risk of these events when determining premiums. Our weather in Maine has seen an increase in extreme weather events such as heavy rainstorms, wind speed, intense snowstorms, and occasional periods of high heat and humidity during the summer. These changes drive claim frequency which, in turn, has resulted in higher premiums.

2. Frequency and severity of weather events: Climate change has led to an increase in the frequency and severity of extreme weather events like storms, hail, and heavy rainfall. These events can result in property damage, which insurance companies consider when determining premiums.

3. Location-based risks: The geographic location of a property can affect premiums. For example, homes located in coastal areas may have higher insurance rates due to the risk of hurricanes or homes in flood-prone zones may have higher flood insurance premiums.

It's important to note that premium increases can vary depending on the insurance company, location, and individual circumstances. If you experience a significant increase in your homeowners' premium, it's recommended to contact your insurance provider or agent directly to understand the specific reasons behind the rate change and explore any potential discounts or adjustments that may be available to you. <

Tricia Zwirner is a State Farm agent celebrating her 21st year in Windham. She and her team would love to hear from you and can be reached via phone and text at 207-892-2864 or via email at tricia@TRICIAZWIRNER.com.

Real Estate: Time to prepare for selling your home is now

By Theresa Bouchard

Are you planning to sell your home in the Spring or Summer months? If so, the time to prepare your home is NOW!

With the market shift and chatter of interest rates dropping in the coming months, many folks are jumping on the opportunity to sell their home in hopes to get top dollar. Buyers are gearing up to purchase their Maine dream home for full-time living or vacationing. So, the real estate prediction is, more inventory and more buyers! What does that mean for sellers? Competition. That said, it is time to put your best foot forward and get your home to shine above the rest!

Preparing a home to sell may look different from one person to another. Here are some effective tips to guide you through the preparation process. Follow these tips and watch the multiple offers roll in!

- Hire a seller real estate agent and get a marketing analysis to determine the value of your home.

- Hire a professional home stager to do a walk-though to define what areas of the home need to be fixed or upgraded and identify an action list of what you need to do to prepare your home to make it most appealing to buyers. A detailed checklist is provided to assist you.

- Paint goes a long way when enhancing the look of your home. A fresh coat of neutral color paint will give your home a new appearance and look beautiful in photos.

- Start the declutter and organization process. Cabinets, closets, storage areas such as basements and attics. The more you purge now, the less you will have to do on moving day. Decluttering and organizing makes a world of difference in photos and during showings.

- Pack away all personal items such as photographs and anything of sentimental value. Buyers need to envision themselves in this space and your personal items can prevent them from doing that. Additionally, the goal is to help buyers make an emotional connection to the home which in turn will create more offers! So, pack personal items away and save them for your next home adventure!

- Update lighting fixtures and/or hardware on your cabinets. Lowe’s and Home Depot have very affordable selections which can make a world of difference when trying to make your home fresh and new!

- Deep clean your home. Wash windows, windowsills, screens, walls, doors, etc.! A sparkling clean home gives the impression that the home is well taken care of.

- Curb appeal! Spring clean up is important and displaying potted flowers can make a great first impression and create a welcoming feeling.

- All shades and curtains must be pulled up and open. Natural light creates beauty in a home so let light shine in! If curtains or shades are old and dingy, either remove them or replace them before photos and showings.

- Have your home professionally staged.

Preparing your home is a must in this market. If the process becomes overwhelming, call a professional home stager to help you with the process. They will provide assistance and direction during and an exciting yet stressful time. Don’t go it alone!

For information on staging services, please call 207-400-9393 on visit our TS Staging and Design website at www.tsstaginganddesign.com <

Exploring this resilient Real Estate market

By Matthew Trudel

The real estate market in Maine has shown steady growth over the past decade even with the recent fluctuation in interest rates. This has made Maine a very attractive place for new residents and investors to consider. 

There is a strong rental market throughout a large portion of the state which investors like. There are many lakes, rivers, and of course the ocean which attract new residents who can now work from home or a remote location. The cost of living in Maine is considerably lower that some of our neighboring metropolitan cities which is attractive to many families. Lower crime rates and generally good education opportunities are also factors that entice people to move to Maine.

The market values in Maine have held up well even with the interest rates nearly doubling. This is because in Maine we don’t see the extreme pricing moves up and down that some other areas across the country experience. Maine has more of a steady growth rate without the big spikes and valleys. This gives investors additional comfort that their investments will not only be profitable, but will also continue to grow and increase in value over time.

This is also why we are seeing a large increase in the construction of multi-unit housing projects across the state. Part of the goal is to create more affordable housing options for people to choose from. Affordable is probably not the best word to describe what the rental market is currently dictating for pricing, however, they do create more options for people to consider. 

We have a solid economy and the job market here is really good too. These are also contributing factors that make Maine a desirable location to move to.

What does this all mean to potential buyers and sellers that are considering making a move? We have a solid real estate market and with interest rates ticking down a little I would predict another solid year of slow steady growth. If interest rates are deterring you as a buyer, I think that is a mistake. Remember that you marry the property and you just date the rate.

Refinancing is always an option and many banks are streamlining the process and waiving most if not all of the fees. Sellers can expect another good year starting in late March to mid-April. The time for planning is now whether you are a buyer or a seller. 

There are a lot of things that both parties should do ahead of time to make the process smooth. First and foremost, find an experienced realtor who know your market area and that you are comfortable working with. Let them help guide you through the process and put you in contact with other professionals that will be able to assist you.

Sellers should be looking at what things they can be taking care of now ahead of time. This includes repairs, painting, decluttering, and overall prepping for showings in the spring. Also looking at what type of financing potential buyers might want to use when they purchase your property. What incentives you can do to make your property stand out over the competition. 

Buyers have just as much homework to do, if not more, than sellers. Making sure your finances are in order and that your credit report doesn’t have discrepancies or is reporting something that isn’t yours. Selecting a lender or mortgage broker to use and determining what are the best options for financing your purchase. There are a lot of different programs out there to assist everyone from doctors to teachers to self employed people as well. 

Again, the most important thing is to select an experienced realtor to help you with the process and make it a successful and smooth transaction. <

This article was written by Matthew Trudel, Owner Five Star Realty, Windham. 207-939-6971 Matt@FiveStarRealtyMaine.com

1031 Like-Kind Exchanges for Commercial Real Estate

By Larry Eliason

A 1031 like-kind exchange is a tax planning tool for deferring tax on capital gains. You can sell an investment property and reinvest the proceeds in a new property. This essentially postpones the tax liability from the sale.

The term “like-kind” refers to the nature or character of the property. There is a wide variety of property types that you could consider to be like-kind as long as they qualify as investment type properties.

A good example is an investor who owns a small shopping center in Windham valued at $1 million. The investor has held this rental property for many years and has accumulated substantial appreciation. Now, the investor wants to diversify his/her portfolio, and they’re eyeing a mobile home park in North Windham for $1.5 million as they see considerable upside potential.

The investor decides to utilize the 1031 like-kind exchange. They sell the small shopping center and use the proceeds to acquire the mobile home park. The 1031 like-kind exchange can help defer paying capital gains tax on the sale of the shopping center.

This transaction should qualify as a like-kind exchange because it involves similar types of real estate assets. The net market value increases from one property to the next. The 1031 like-kind exchange allows the investor to seamlessly transfer their real estate investment while deferring tax liabilities.

If you are considering a sale with the intent to use the 1031 like-kind exchange, identify the property you want to sell. This must be a qualified investment property and not your primary residence. Again, personal residences don’t qualify for a 1031 like-kind exchange. The subject properties must be held for investment or used in a trade or business.

Before you sell your property, hire a Qualified Intermediary. This step is instrumental because the IRS doesn’t allow the seller “you” to touch the money between the sale and the purchase of the new property.

Once your property is sold, the proceeds minus any closing costs and debt pay-off go to the Qualified Intermediary. Again, the sale proceeds cannot go to you. If you were to receive the proceeds directly, this would be the basis for a disqualification and result in a tax event that you wanted to avoid in the first place.

You have 45 days from the date of sale to identify up to three potential replacement properties. To fully avoid paying any tax, the net market value and equity of the property acquired must be the same as, or greater than, the property sold. This is regardless of their total value or as many properties as you want, as long as their combined value doesn’t exceed 200 percent of the sold property’s value. You must document this in writing and deliver it to your Qualified Intermediary.

From the date of sale of your initial property, you have 180 days to complete the purchase of any property or properties identified in the previous step. The Qualified Intermediary then transfers the funds from the initial sale to the seller of the replacement property.

When you file your taxes for the year the 1031 like-kind exchange took place, include Form 8824 in your tax return, notifying the IRS of the exchange and informing them what property you sold and what property you purchased as part of the exchange.

The IRS rules for 1031 exchanges are very strict, so be sure to follow them closely. If done correctly, a 1031 like-kind exchange can be a powerful tool for deferring tax and building wealth through additional real estate investment.

The tax return and name appearing on the title of the property being sold must be the same as the tax return and title holder that buys the new property. Today, many properties are bought and sold using LLC’s or Trusts so keep this in mind and be consistent.

No additional value received in an exchange can be allowed that isn’t like-kind property, such as cash, property improvements or debt relief.

When you sell a property as part of a 1031 like-kind exchange, all of the equity you receive from the sold property must be reinvested into the replacement property.

When you sell and buy property as part of a 1031 like-kind exchange, both the sale and purchase need to be arm’s length transactions. Family related transfers can certainly come under a lot of scrutiny by the IRS so consult with your advisors.

A Reverse 1031 like-kind exchange is another option that allows you to purchase your replacement property before selling the property you intend to replace. This has many of the same rules and requirements as a normal exchange.

As always, consult with your professional team such as your Lawyer, Accountant, Banker, Qualified Intermediary and Commercial Broker early in the process so that you may take full advantage of this very useful tax planning and real estate investment tool. <