The back-to-the city trend in recent years has not ended Americans’loveofsuburbia,but
it has resulted in a noticeable shift in living preferences. Today, a not insignificant
share of the population, in all age groups,
is opting for urban neighborhoods that
a decade or two ago were considered
undesirable or nonresidential.
For financial advisors, this trend in
housing preferences has ramifications
for clients’ financial plans. It also increases potential liabilities of which advisors
and clients themselves may not be aware.
For example, many urban neighborhoods that are magnets for new city
dwellers are designated historic districts. These are areas for which a
local government has established rules
and regulations regarding the external
appearance of homes, and at times their
internal features, to preserve their historical integrity.
There are about 2,300 local historic
districts spread throughout the country,
and they are not confined to urban areas.
Many suburban and even rural historic
districts exist, and newcomers buying
homes in these districts may not be
aware of the restrictions on renovations
they may face, or the cost of making
changes that comply with requirements.
For those who love the charm of an
older home and derive satisfaction from
living in an area with historical signifi-
cance, the hassle and cost of complying
with historic district requirements —
such as limitations on external paint col-
ors and types of windows that can be
used — may be annoyances, but not deal-
breakers. In fact, buying a home in an his-
toric district is often a good investment.
PlaceEconomics, a Washington-based
research firm that specializes in analyzing the economic impact of historic
preservation, has found that property
values in local historic districts appreciate significantly faster than the market
generally in the vast majority of cases.
Many buyers of homes in historic districts find that their investment gains are
greatest when they buy a neglected or
dilapidated home in a new or long-time
historic district and then make extensive
renovations. These changes are designed
to bring the home up to modern standards
in terms of heating, cooling, plumbing and
electrical capacity, while still complying
with the requirements of the district to
preserve exterior elements (which could
mean restoring original windows rather
than replacing them, for example) and
perhaps retaining and restoring many of
the original interior elements of the home
such as elaborate doors, stained glass and
For many historic home buyers, ren-
ovations and restoration are not only
investments that can pay off handsome-
ly, but also are a labor of love and an
opportunity to immerse oneself in his-
tory, architecture and interior design.
But there is no denying that the process
can be expensive, especially as it often
involves skilled craftsmen and artisans,
says Kate MacDougall, a historic home
specialist at Chubb.
Financial advisors can help clients
involved in such undertakings by pointing
out a risk they may not realize they face
should their restored home be damaged by
fire, water or in some other way. The risk
is that while their homeowner’s insurance
may cover the cost of repairing or replac-
ing damaged portions of a home’s interior
to standard levels, it probably won’t cover
the cost of returning the home to the level
achieved through a restoration. The cost
of replacing damaged walnut-paneling
and molding in a library that had been
meticulously repaired and restored, for
instance, could fall squarely onto a finan-
cial advisor’s clients, because their insur-
ance probably wouldn’t cover the expense
of restoration to the original state.
Premium insurance policies, which
may be a better fit for a historic home,
generally handle such losses differently.
They will cover the cost of replicating the
home’s original details or those that had
been replicated and then damaged. The
insurers will go to specialists to replace
those features rather than pay for builder-grade materials from mass suppliers.
Fran O’Brien is division president, North
America Personal Risk Services, Chubb. She
can reached at AskFran@Chubb.com.
WEALTH & RISK
By Fran O’Brien
When This Old House Becomes Your
Keeping up with client needs may mean knowing their plans beyond