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  #1  
Old 03-10-2006, 12:55 PM
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Home owner's insurance.

How does one determine the “replacement value” of a house? I'm talking about the structure and not the contents. I spoke with the insurance company about this, and they say they use a formula, and the formula accommodates appreciation, but it seems to differ widely from reality.

As example, I recently spoke with an architect and they claimed that around here anyway, residential building costs are about $200 per sq foot. According to the insurance company, the “value” of the house is approximately half of that. So how do you figure out the real value??

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  #2  
Old 03-10-2006, 01:23 PM
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They want to pay what it would cost to build what you had, according to their forumlas. Of course, that's different from building new, which will be using different techniques and materials.

If you think the offer is wrong, there should be some arbitration procedure spelled out in your policy. Look there first.
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  #3  
Old 03-10-2006, 01:37 PM
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In the insurance world Replacment Cost The full cost to repair or replace the damaged property with no deduction for depreciation, subject to policy limits and contract provisions
Replacement Value The cost to repair or replace an insured item. Some insurance only pays the actual cash or market value of the item at the time of the loss, not what it would cost to fix or replace it. If you have personal property replacement cost coverage, your insurance will pay the full cost to repair an item or buy a new one once the repairs or purchases have been made.
The forumula aka HUD Form 92278
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  #4  
Old 03-10-2006, 06:46 PM
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This whole deal is a can of worms.

If you insure your house for $200K with "replacement value" as the requirement, the insurance company gets to evaluate, after the loss, whether you have insured the house for the proper amount. If they determine that you were "underinsured" by more than 20%, then, they don't have to honor the "replacement value" guarantee. The replacement value, as determined by them might be $50K more than what you currently have it insured for. In a total loss situation, you'd be screwed.

If you don't have "replacement value" then you've got "depreciated value". Now the SOB's get to determine the value of your 1921 house after depreciating the framing, siding, roof, etc. They might come up with a depreciated value that is significantly less than the $200K that you have for value. They won't pay more than the depreciated value no matter what the insurance value on the policy.

It's a very murky area and one that everyone should carefully examine for their own situation.
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Old 03-11-2006, 10:48 AM
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Thanks for the feedback. The insurance company claims that the coverage is adequate, yet their statement of the value of the property is far out of touch from what actual building costs are. I understand that the value of the land isn’t included in the cost of the structure, and that’s not what I’m talking about. In the instance that the house was destroyed, as in a fire, they say the structure’s value would be $X to rebuild. That X is their statement of the household property. According to the architect that I spoke with, based on average building costs, that not even half would be covered. So even with a margin of 20% they don’t come close. How can they be permitted to consistently undervalue property? Especially now a days when property values are all extremely easy to determine? Isnt that a deceptive practice on their part?

I’m all too familiar with how they assess depreciation. That is yet another scam. Even with replacement value coverage for personal property, they will wiggle complain about every detail.
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  #6  
Old 03-11-2006, 10:54 AM
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Quote:
Originally Posted by Lebenz
Thanks for the feedback. The insurance company claims that the coverage is adequate, yet their statement of the value of the property is far out of touch from what actual building costs are. .
That is bizarre. Over here, my agent is constantly informing me that I should up the coverage limits. A small 800 square foot house can't be built for $120K anymore.......per the insurance company. They wish to maximize their premiums.......obviously. I resist the pressure to raise the valuations.

In your specific case, simply determine the value per square foot. $200. per square foot can build a pretty elaborate house. I'm convinced that I can build a basic house for $150./ If you use the number of $200./, I'm sure that you'll be OK unless you have a very high end dwelling with expensive kitchens and baths.
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  #7  
Old 03-11-2006, 11:12 AM
MedMech
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Quote:
Originally Posted by Brian Carlton
That is bizarre. Over here, my agent is constantly informing me that I should up the coverage limits. A small 800 square foot house can't be built for $120K anymore.......per the insurance company. They wish to maximize their premiums.......obviously. I resist the pressure to raise the valuations.

In your specific case, simply determine the value per square foot. $200. per square foot can build a pretty elaborate house. I'm convinced that I can build a basic house for $150./ If you use the number of $200./, I'm sure that you'll be OK unless you have a very high end dwelling with expensive kitchens and baths.

HUh? You can easily build a house for $100-$120 a foot.
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  #8  
Old 03-11-2006, 11:19 AM
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From the comments above, it seems there are a variety of standards for average building costs. Is it a fair guess that building costs are subject to huge local variables?

And it could easily be the case that the insurance company is striving so much for the low-ball rate that they have opted to provide what amounts to half-insure my house. I’ve seen so many cases where they do this for automobiles that it would come as no surprise.

Perhaps it’s time to shop for a different provider. I’ve been a good customer for about 14 years.
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  #9  
Old 03-11-2006, 01:58 PM
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Originally Posted by MedMech
HUh? You can easily build a house for $100-$120 a foot.
You can.......it can't be done here in NY or out in CA anymore. Also, the $100/ probably does not include your profit......correct??

The new hurricane codes here are onerous. The wall studs must be built aligned with the floor joists and each wall stud must be strapped to the floor joist. The strapping must extend up about 12" onto the plywood.

Each window needs to be provided with "hurricane plywood". Nowhere to put up the plywood because you can't nail it to the siding or the windows........but.......the builder must provide one for each window........or........no C/O.

It's become a real PITA here.

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