Most home sellers are familiar with the concept of home seller's insurance, which is often marketed by the broker responsible for the sale.
The product was formerly known as “change of ownership insurance” and is priced between 0.27 and 0.57 percent of the sales price, with a minimum and maximum of NOK 12,400 and NOK 65,000 respectively for detached houses.
– This is liability insurance in case of damage to the thing being sold, says lawyer Christian Christiansen at the Tetzschner & Co. bar.
– It can be compared to car liability insurance, as the insurance covers damages that occur if another car is driven.
The attorney adds that home seller's insurance also covers any legal costs, and that it is virtually unlimited when it comes to the amount of coverage.
Communications Director Christian Haraldsen at Gensedig still sees the need for home seller insurance. Read his objections in this case.
Article continues below adArticle continues below ad
Not a requirement
-Should you buy home seller insurance?
No, there is no requirement to obtain home seller's insurance when selling a home, just as there is no requirement to obtain cell phone insurance when purchasing a cell phone, Christiansen answers.
According to communications manager Christian Haraldsen at Gjensidige Forsikring, it is also not possible to lower the price of a home seller's insurance by agreeing to a deductible.
– Explains that the “buyer's own share” is defined directly in law and amounts to NOK 10,000.
Article continues below adArticle continues below ad
– Perhaps a larger discount, for example NOK 100,000, could have resulted in a lower price, but Gjensidige did not make any calculations for this.
Attorney Christian Christiansen at Tetzschner & Co. Photo: Attorney Christian Christiansen
Not apartments
-Do home sellers generally have to purchase home seller insurance?
– Home seller insurance usually plays a role when selling detached houses and terraced houses, but the need for the product has changed, after there has been a demand for comprehensive condition reports, answers lawyer Christiansen.
Article continues below ad
– When selling an apartment, there is almost no point in taking out insurance, as payments are rarely of this size.
Insurance is not recommended
-Do you have any other advice for people thinking about purchasing home seller insurance?
– The requirement for comprehensive condition reports when selling a home means the seller must pay a relatively large sum to an appraiser, who does a comprehensive review of the home upon sale, Christiansen says.
– This means that the risk of a buyer getting negative surprises is much lower, and therefore there is less reason to take out home seller insurance.
The result is that the lawyer no longer recommends that product, whether it is a detached house, a townhouse or an apartment being sold.
Costs too much
– What about home buyer's insurance? Is this a useful product?
– It exclusively covers 100 percent of any legal costs the buyer may incur in connection with defects in the seized home, and there is no requirement to obtain such insurance, Christiansen says.
Article continues below adArticle continues below ad
– Contents and home insurance already cover 80 percent of legal expenses, up to NOK 100,000, and in a few cases cost more than this maximum amount.
Since disputes arise in 20 percent of cases, it doesn't make sense to get homebuyer insurance to cover the last 20 percent of legal expenses, Christiansen believes.
Attorney Christian Christiansen believes that the relatively high sales of home buyer's insurance are primarily due to the fact that real estate agents who sell the product receive a commission for each sale. Photo: Kent Oksnes, Benjenet
It has other disadvantages
– Home buyer's insurance also has other disadvantages, including that the insurance company practically decides whether you can move forward with the case, the attorney continues.
– The product also has certain advantages, but in reality they are small.
Christiansen believes that the relatively high sales of home buyer's insurance are due primarily to the fact that the real estate agents who sell the product receive a commission for each sale.
He says: – My advice is not to buy home buyer's insurance.
– Alternatively, use Legal Aid Contents Cover or Home Insurance to cover legal expenses, should a dispute arise.
Article continues below ad
Communications Director Christian Haraldsen at Jensedig. Photo: Jensedig Forseeking
You still need home seller's insurance
Gjensidige is among the companies that offer home sellers insurance in Norway.
According to communications director Christian Haraldsen, there are still good reasons to buy such products.
– How is the need for home seller's insurance affected by requiring a comprehensive condition report when selling a home?
– At the same time as the new condition reporting requirements were introduced, the threshold for a buyer to claim a reduction in price was significantly reduced, meaning that a much larger number of buyers could make a potential defect claim – so the seller could still benefit from the home being answered by seller's insurance.
Article continues below ad
– Previously, there had to be a “significant” deficiency, but now the “substantial” requirement has been abolished.
How much does home seller's insurance cost?
- The home seller's insurance rate is calculated as a percentage of the broker's suggested price.
- The blood alcohol level used depends on the type of drug being sold.
- Example: The insurance price for a freehold apartment with section number and suggested price of NOK 3 million would look like this: NOK 3 million x 0.00458 (4.58 per thousand) = NOK 13,740.
- The insurance premium is a lump sum, lasts for five years, and covers the seller's liability for defects in accordance with the law.
Source: Mutual
Hidden errors are a danger
In addition, condition reports do not reveal all hidden defects and deficiencies, notes Haraldsen.
– Even if the appraiser were to conduct some of the more comprehensive checks, much still falls outside the scope, he explains.
Article continues below ad
– Among other things, joists and internal structures may not be evaluated.
The communications manager explains that buyer-seller disputes happen for almost all products, whether when selling new or used products. The thing about the housing market, according to Haraldsen, is that each home is unique, that disagreement is often over very large values, and that the issues can be complex in terms of construction technology and law.
– It is completely unrealistic to imagine a housing market completely free of conflicts.
– Both complexity and large values involve significant risks to the seller, which is naturally insured against.
This article was previously published in FinanceAffairs.com.
“Explorer. Unapologetic entrepreneur. Alcohol fanatic. Certified writer. Wannabe tv evangelist. Twitter fanatic. Student. Web scholar. Travel buff.”
