Placing an offer on a multifamily property is an exciting step, but overlooking insurance at this stage can lead to costly surprises later. In today’s changing insurance market, waiting until you are under contract to think about coverage is risky. The smart move is to address insurance early so you can budget accurately, avoid underwriting pitfalls, and keep your closing on track.
Don’t Rely on the Offering Memorandum
Offering Memorandums often include projected insurance costs, but these numbers are frequently outdated or unrealistic. The multifamily insurance market changes quickly, and premiums vary dramatically depending on property condition, risk scores, and carrier appetite. Use the OM as a reference point, but never base your underwriting on it. Always get your own estimates.
Ask About Loss History Early
Carriers will require loss runs (formal records of claims history), and many won’t provide quotes without them. At the offer stage, you can usually start with a verbal confirmation from the seller or a signed no known loss letter. This prevents wasted time later if the property has a troubled claims history.
Electrical Panels and Other Underwriting Red Flags
Carriers scrutinize building systems closely, and electrical panels are a common deal-breaker if they are outdated or not up to current code. Roof age, plumbing, and HVAC are also heavily weighted. Identifying these potential issues early allows you to:
- Budget for upgrades
- Push for seller repairs
- Anticipate higher deductibles or exclusions if problems remain
Know Your Lender’s Insurance Requirements
Lenders can significantly influence insurance costs. Fannie Mae and Freddie Mac in particular have set high standards around property, liability, and catastrophe coverage. For example:
- All-risk property insurance at full replacement cost
- General liability with $1M per occurrence and $2M aggregate limits
- Flood, earthquake, or business income coverage if the property is in a designated risk zone
Choose your lender carefully. Some have stricter insurance demands that can drive premiums higher or require coverages that are difficult to obtain.
Consider Risk Zones
Check early whether the property is in a flood or earthquake zone. These designations can add significant costs, and failing to account for them upfront can throw off your pro forma.
Watch for Seller Situations
If the seller owns the property outright, they may have been carrying a lower-cost insurance policy without lender-required coverages. As a buyer using financing, you will not benefit from those stripped-down terms. Expect higher requirements and potentially higher premiums when you step in.
Proactive Steps Before You Offer
- Get preliminary quotes based on accurate property details
- Ask about losses and secure at least a verbal history or no loss letter
- Verify system updates, especially electrical panels
- Review lender insurance requirements before you lock in financing
- Confirm flood or seismic zone exposure early
The Bottom Line
Securing insurance is just as critical as securing financing. By addressing it at the offer stage, you prevent costly surprises, negotiate from a position of knowledge, and move into due diligence with confidence. In today’s evolving multifamily insurance market, being proactive with insurance can be the difference between a smooth closing and a deal that falls apart.
