Why You Should Ask for a CLUE Report Before Buying a Home

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That renovated Victorian home looks like the perfect fit for your family. But even though it may look like your dream home, how do you know there aren't expensive, hidden problems lurking beneath the surface?

This is where a CLUE report comes in.

The Comprehensive Loss Underwriting Exchange, or CLUE, database lists insurance claims on a property for the last seven years. Most home insurers participate in the database, reporting claims that homeowners file for everything from water damage, to fire loss, to break-ins.

If a CLUE report indicates a chronic or repeat problem, that's a red flag. If you buy that home, and the owners didn't do anything to resolve the problem, you’ll be the one paying for future repairs or filing future insurance claims. (See also: 23 Hidden Costs of Buying an Old House)

How a CLUE report works

When homeowners file an insurance claim, most insurers report that claim to the CLUE database. The CLUE report lists the dates when claims were made, the type of loss that a home suffered, and the amount that the insurance company paid out. The CLUE report also lists when insurers deny homeowners' claims.

All claim information, though, drops off a CLUE report after seven years.

Some CLUE reports will be blank. That can happen if homeowners haven't filed any claims in seven years or if the owners' insurance company is one of the few that doesn't report information to the CLUE database.

Homeowners can get a free CLUE report for their residence once a year from database company LexisNexis. The easiest way to do this is by ordering the report online. Consumers can order CLUE reports for their homes, their cars, or both. Those ordering a report for the first time must open a new account with LexisNexis to access their documents.

You can also order reports by mail or by phone at 1-866-312-8076.

The catch

For homebuyers, there is a catch: They can only order CLUE reports on the properties they already own. They can't order a report for a residence they are considering buying.

Buyers must ask the current owners of the properties they want to buy to order the CLUE reports and share the documents with them. Of course, owners don't have to provide this information. Those who have filed plenty of insurance claims, especially if these claims were for a chronic problem, might not be eager to share their CLUE reports.

Buyers, though, might get a sense of relief if they do request CLUE reports and homeowners are happy to provide them. This is one piece of evidence that owners aren't hiding anything.

The benefits of a CLUE report

Homebuyers should carefully search a CLUE report for indications of a recurring problem that could make living in the home a financial struggle.

For instance, if a CLUE report on a particular property lists five burglaries in the last seven years, that's a sign that a home could need an alarm system. It might also mean that you don't want to live in that neighborhood.

If a homeowner is making frequent claims for water in the basement, that might be another warning sign. Unless the homeowners did something to resolve the issue — such as waterproofing — you might not want to invest in a home with a basement that suffers frequent water damage.

Insurance claims, though, don't always mean bad news. Maybe the owners of a home filed a claim for a roof that was damaged in a severe hailstorm. If the insurance company paid out for a new roof, that's proof that you won't need to invest in a new roof of your own for several years.

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