How do you estimate commercial insurance rate for a property?

Question

I'm putting together a proposal for a potential buyer of an investment property. I'd like to include an estimated insurance rate so the numbers I present are at least close to what reality would be. Insurance brokers can't put together an estimate without disclosing tons of info.

Is there a "formula" one could plug some numbers into to come up with a realistic estimation?

Anthony Lee · Answer

@Derek Lacy & @Jason Bott are entirely correct.

@Joel Owens, you make mention here that "Some property management companies, you can put a property in their master insurance policy..."

While this is truly possible in some circumstances, there are significant concerns the buyer would have to be aware of.

For instance, in that situation, the property owner would not be the First Named Insured on the policy. While for some, this may not be a concern, whenever one is not the First Named Insured, they are giving up several rights under the policy.

Joel Owens · Answer

On the investment property your buyer is considering ask the listing broker or if dealing directly ask the owner if they are using a single property owner policy or a master policy??

If your investor buyer does not own other properties then likely they are looking at a single property policy and if seller has a master policy the annual rate is likely to be higher for the buyer than what the owner is currently paying.

Some property management companies you can put a property in their master insurance policy or the insurance agent can group your property into a master insurance policy for some savings.

It depends on what type of property you are talking about also. For example triple net retail the tenants reimburse the landlord policy costs and there is no limit unless capped in the leases for the tenants at a certain amount they cover. Now getting the lowest rate is still important with the best coverage as the CAM costs tenants reimburse you want low as possible for total per sq ft so they can pay the base rental increases easier and keep the businesses healthy.

Also when your buyer goes to get a loan the lender will have landlord policy insurance requirement coverages to fund the loan.

So there are a ton of variables. I am not an expert on insurance this is just what we go through each time when my clients buy retail shopping centers.

If you estimate numbers for your client make it clear it is an estimation and be conservative with the costs (estimate higher) so that if the number is lower the buyer is happy. If you estimate low costs to make the deal look better then it is and buyer offers a higher price and gets higher estimates then likely buyer will want seller to reduce price. Seller will see as a re-trade on the deal and the deal might die. If on the other hand everything keeps turning out better for the buyer as the deal progresses to closing then chances start increasing the deal will close.

Some property types do not reimburse landlord for insurance etc. from the tenants so you need to be clear on the asset type and how costs are structured on those deals.

No legal advice given.

Jason Bott · Answer

@Gina Schulz sorry, no formula. Even the sellers current insurance policy may be higher or lower than what your buyer can currently get.

Just sent the commercial property listing to a commercial broker and they should be able to estimate with that info.

If you send to a personal lines agent, they need personal info, which is not feasible for you.

How do you estimate commercial insurance rate for a property?

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