Picture a buyer with a model that looks finished. Rents are supported, taxes have been rebuilt, and the insurance line came straight off the seller’s trailing twelve months (T-12) statement: $66,000 for 120 units. Three weeks before the deposit goes hard, meaning it can no longer be refunded, the buyer’s own broker sends the first written quote. It is $93,600, and it carries a wind and hail deductible of $288,000 per storm.
Nobody lied. The seller’s number was a real expense, paid under a real policy. It priced someone else’s coverage: that owner’s carrier, that owner’s deductible, that owner’s renewal date, and possibly a program the buyer cannot step into.
Now put yourself in the chair. You are reading that model as the buyer, or as an investor deciding whether to back the sponsor who built it. The insurance line looks like the dullest number on the page, and it is one of the few nobody priced for this owner. Left uncorrected past the go-hard date, the gap comes out of your returns.
We at Heartland Gate treat insurance as a bid, not a line item to copy. The seller’s T-12 shows what that owner paid. Only a buyer-side quote, or the binder that confirms coverage at closing, shows what year one will cost.
What the seller’s line can and cannot tell you
The T-12 insurance line is roughly the seller’s premium spread over the trailing year, plus whatever else the seller booked there: liability, umbrella, flood coverage, or broker fees. A premium also comes paired with a deductible, and a low premium is often bought with a high one, so a premium-to-premium comparison can mislead in either direction.
The seller’s figure carries history the buyer may not inherit. The policy may have been written in an earlier market. It may sit inside a portfolio blanket or a captive program, where one policy or an owner-controlled insurer covers dozens of buildings. It may reflect a long relationship with a carrier that has little appetite for a new owner.
Agency lenders have been direct about this. Fannie Mae’s 2023 inflation underwriting guidance said that for an acquisition, lenders should “only underwrite premiums from the buyer’s carrier, and disregard the seller’s current insurance premiums or estimates.” We have not confirmed that supplement is still in force, but the reasoning behind it still holds.
What the buyer’s broker will be asked
When a broker shops the property to carriers, underwriters describe the risk with a frame called COPE: construction, occupancy, protection, and exposure. Expect questions about roof age and type, wiring and plumbing updates, sprinklers, fire protection class, the renovation plan, and in the Midwest, exposure to hail and windstorms. The Triple-I’s 2026 brief on severe convective storms reports, citing a Gallagher Re estimate, $51 billion of U.S. insured losses from those storms in 2025.
The carrier will also want a statement of values (SOV), the schedule of buildings and their replacement cost, and the seller’s loss runs, which are the carrier’s claims history for the property. Loss history stays with the building. A clean record helps the buyer’s price, but the carrier still sets it.
Agency debt adds a second test. The Fannie Mae Multifamily Selling and Servicing Guide, Part II, Chapter 5 and the Freddie Mac Multifamily Guide, Chapter 31 both call for a carrier rated A- or better by A.M. Best and coverage of at least 90% of insurable value on a multiple-building property. Both also cap deductibles, with wind and hail generally capped at 5% of total insurable value (TIV). A seller’s high-deductible program may simply not qualify.
One Midwest illustration
For illustration, take a property we will call Prairie Court: 120 units of 1970s garden apartments in several buildings, bought at $10.8 million. The figures are round teaching assumptions, not a Heartland Gate property or transaction.
The seller’s T-12 shows $66,000 of insurance, about $550 per unit, with a $25,000 deductible. The buyer’s broker returns a written quote of $93,600, or $780 per unit, with a $50,000 all-other-perils deductible and a 2% wind and hail deductible on $14.4 million of replacement cost. Year-one underwritten net operating income (NOI), before debt service and replacement reserves, was $702,000 with the seller’s number in it. At an illustrative 6.50% capitalization rate, chosen for arithmetic rather than as a market claim, here is what swapping in the quote does.
| Seller T-12 line | Buyer written quote | |
|---|---|---|
| Annual premium | $66,000 ($550/unit) | $93,600 ($780/unit) |
| Year-one underwritten NOI | $702,000 | $674,400 |
| Value at illustrative 6.50% cap | $10,800,000 | $10,375,385 |
The premium rises $27,600, or 41.8%. NOI falls 3.93%. Implied value falls $424,615, about $3,538 per unit, which is the $27,600 divided by 0.065. Because buyers price a building off its recurring income, every added dollar of annual expense comes off value many times over.
Do not read 41.8% as typical. It is a teaching number, and a different set of equally reasonable assumptions could land near zero or below. The Federal Reserve Board’s 2025 note on apartment insurance costs found average real costs rose from $39 to $68 per unit per month between 2019 and 2024, and that each added dollar of insurance cost went with roughly 72 to 74 cents less net income. That sample leans toward larger, newer properties financed through commercial mortgage-backed securities (CMBS), not our workforce stock. It shows which way costs have moved, and it cannot tell you what your quote will be.
The deductible never shows up in NOI, so it gets skipped. Two percent of $14.4 million is $288,000 retained per storm, or $2,400 per unit, against the seller’s $25,000. That is well inside Fannie Mae’s 5% cap, which would allow $720,000. This quote costs more and shifts more storm risk onto the owner, so the model needs a reserve or liquidity line next to the premium.
When the seller’s line is still useful
Sometimes the buyer’s quote comes in flat or lower. The seller may have renewed at a market peak, or carried losses the buyer has since cured, or the buyer may bring portfolio scale. Some brokers have reported commercial property rates softening in 2026, though we have not verified that independently. A higher premium with a lower deductible can also be the better trade. Only a bid tells you which way it moved this time. Treat the seller’s figure as history and a starting point, then replace it with the quote.
Questions to ask the broker or the sponsor
You do not need to price the policy yourself. You need answers to a few plain questions:
- Is the year-one insurance line a written quote from the buyer’s side, or copied from the seller?
- Which carrier, and does its rating meet the lender’s minimum?
- What replacement cost was submitted, and does coverage meet the lender’s percentage?
- What is the wind and hail deductible in dollars per storm, and who holds the cash for it?
- Have the loss runs been read, and are any claims still open?
- Is the seller on a blanket or captive program the buyer cannot copy?
- When does the quote firm up relative to go-hard and rate lock (the date the loan’s interest rate is fixed), and when is the binder due?
If you are evaluating a sponsor, ask which of these they have answered. A sponsor who cannot say whether the insurance number is a quote has not yet priced one of the costs your returns depend on.
The rule we work by
Our underwriting playbook says never assume seller expenses continue unchanged after sale. For insurance, that means a buyer-side quote, priced against our own statement of values, deductibles within the lender’s limits, and the seller’s loss runs, goes into the model before the deposit goes hard and before rate lock. Then we re-run NOI and value on that number. We apply the same discipline to taxes, as we wrote in The Seller’s Tax Bill Is Not Your Year-One Tax Bill, and to the broader rebuild in T-12 Normalization. For how insurance fits our screens, see What we look for.
Insurance is a bid, not a line item to copy. The seller paid for the seller’s policy. You will pay for yours.
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By Bob Ewoldt · Last reviewed October 12, 2026
This article is general educational content on multifamily acquisition discipline and insurance underwriting in acquisitions. It is not an offer to sell or a solicitation to buy any security. It is not investment, legal, insurance, or tax advice. It does not determine investor eligibility. Illustrative figures are teaching assumptions and calculations, not performance results. Lender requirements described are public-proxy educational framing and may change; confirm current terms with your lender and insurance professional. Private securities involve substantial risk, including loss of capital and limited liquidity. Consult qualified professionals before making investment decisions.
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