Sally Redux

I suppose completely rebuilding it to current codes could cost a lot more than the purchase price. Without knowing the specifics, it's hard to comment.

celticgrid

Cynical me sees a lot of it as simply smoke and mirrors by the insurance companies.

We had a quote for the house insurance in January this year that put the rebuild value at around 70% more than it was from the same insurer a year earlier. When I challenged this I was told that certain elements, such as labor costs, had risen. Not that they'd got it wrong previously, or any other reason that might have made even some sense.

Essentially I said that I did not believe that in the middle of the current economic mess some building companies were increasing prices by 70% and asked the insurance company to have another go. We agreed on a reasonable number.

celticgrid

Good starting point, but can you clarify what contributes to the "improvement" value? Is it just the house, or is it the infrastructure that goes with it such as drains, maybe even just preparing the plot? This is territory I haven't explored before so any views would be welcomed please.

I'll have to look into our records, but it strikes me that the value of the land to start with would be less than the value of the plot should the house suddenly be wiped from the map. To remove full added value would probably require a good disaster of some kind which would, in an ironic twist, probably drive down property values for some distance around

chartreuse

Yep, looked at that, but the prob is the insurance cos all use their own multipliers to calculate replacement cost and some of them are silly.

Think of it like this - say I buy a car for $30K.
If it gets stolen, do I want to be able to replace it with like? Yes.
If somebody prangs it and dents the wing, do I want coverage for the repairs? Yes.
If somebody breaks in and nicks my stuff, do I want that to be covered? Yes.
If a steamroller runs over it and flattens it, do I want to be covered for the $20million it might cost to send it to NASA and have it lovingly rebuilt? Errr.... No?

scrubbedexpat099

Assuming no special features, rebuilding cost in Co is about 120-150 sq ft.

What does you cost work out to per sq ft?

Current houses can be bought at about 70% of the cost of constructing new, hence the dearth of new build here.

But that has not a lot to do with a sum insured. Very very few losses are total losses.

meauxna

hmm, and it's been a while since I looked at it (but it's on the radar recently, so, I'll suffer with you).
At any rate, my recollection is, from the ground up. I live inside the city limits, in an 85+y/o house. You can't get old growth timbers like this anymore...

chartreuse

Round here the average from insurance agencies seems to be working out at about $90 per sq ft. Except for the ones, like Safeco, who seem to pick a number in the middle of the range you quoted. FWIW, this house is worth way less than 70% of that.

I take your point about few losses being total, but I do wish there was more granularity in the process.

Another gripe is, they insist you set your deductibles as a percentage of the "rebuild cost" and have a very limited range of choices (though that might just be the agents I've been talking to - like I said, nobody here gives a toss cos it's a captive market and they're all comfortable).

scrubbedexpat099

http://www.building-cost.net/CornersType.asp

I know that tract homes her go for $100 sq ft, but I would expect Texas to be cheaper. Materials costs will be similar, your labour costs will be lower and spec may be lower to.

Building em masse gets you economy of scales.

chartreuse

Thanks. The questions were very informative and gave some insight into how one industry approaches the matter.

Sadly, although I answered honestly, the final figure was two orders of magnitude greater than the value of the house.

Bluegrass Lass

That's a very interesting approach to setting a deductible. In our experience, setting the deductible for our house was the same as for a car. We went with $1000 the first year, and decided to change it to $500 upon renewal. However, the deductible in case of a full replacement is around 10% of the replacement cost, IIRC. So we actually have 2 different deductibles types.

Good luck with your selection. It does sound like there is something shady going on there.

Michael

$90 per sf seems to be about right for Texas with no frills. In the California bay area, it is upward of $250 per sf.

chartreuse

Thanks. I suspect that I'm a victim of the small town lack of competition. Another thing I didn't bargain for when I said "Wow, houses are cheap!" instead of "Hmmm.... why are houses so cheap?"

The difference is possibly because they try to keep you safe from earthquakes, whereas here, if you die in a tornado it serves you right

S Folinsky

First, earthquake coverage is not included in California homeowner policies. After Loma Prieta and Northridge, most companies stopped writing it. And the national companies told the State that they would withdraw from the California market rather than write it. The former 20th Century was California based and Norhridge bankrupted them. If you want earthquake coverage, it is extra and is often only offered via the "California Earthquake Authority" whose liability is limited only to the funds it has. [CEA has now gone 18 years w/o a major earthquake in a metropolitan area].

It pays to remember that older houses often are "a lot of house for the money." My first house was one of those "Little Boxes" in San Francisco. BTW, it was blue. If I still owned it, and this house made of "ticky tacky" which looked "just the same" as the other houses burned to the ground -- it would be necessary to replace the solid oak hardwood floors, the tiled bathroom and the tiled kitchen. The walls were plaster and not drywall. None of those things are found in a new house built today of "ticky tacky."

One poster mentioned that the insurance company will replace only the market value of the house. "Real Estate" is not the same as "personal property." The comparison to a car is not really valid. The insured interest is what it takes to put a "comparable" house on the lot. BTW, in some areas the disparity between replacement cost and value is so disparate, the companies won't write insurance [e.g. an old mansion in what is now a slum area].

However, it also pays to get riders to cover "code upgrade" and avoid "betterment." [e.g. a new roof is worth more than a 10 year old roof].

You don't mention if you are getting quotes for full replacement or not. If so, the amount of "coverage" quoted is for two purposes which affect you -- determining premium and what will be paid if you do not rebuild and walk away with the money.

If the coverage is not "actual replacement" [I can't get it anymore due to the age of my house], then the amount is the actual coverage. And that takes a careful evaluation.

You are correct that it is unlikely the company will have to pay full coverage. Remember that the coverage is for if your house is 100% destroyed -- burned to the ground, foundation or slab cracked, etc. It is more likely that you will suffer partial damage. So, lets say that the realistic cost of replacement of the entire house is $200,000. But you purchase only $100,000 of coverage. There is a fire and half of the house burns down with cost of repair being $100,000. So you will be left with obligation to pay $50,000 to repair or you can walk.

A further BTW, many companies have discovered that their underwriting standards were woefully out of date or based on faulty information.

What can be considered a "scam" is that if you don't carry the HO insurance, the lender will purchase a policy covering the loan balance only -- the only beneficiary of the policy will be the lender. But you have to reimburse the lender -- and get this -- those policies are usually MORE expensive that buying the HO in the first place.

The main problem you have is not about the insurance per se -- it seems that your home value went down leaving you with no equity. You properly feel that in current circumstances that the insurance may be of no financial value to you under your current circumstances and plans. That is not the fault of the insurance company.

Why are you not willing to sell now?

chartreuse

That's a very good question, now that you mention it. Mainly because the plan is to stick it out here for another year and a half, until I've finished the MSc and gained US citizenship, then see what opportunities there are in cities that may be more to our taste.

I was joking about the earthquake thing, btw. Truthfully, I was just having a moan about the massive disparity in what different companies estimate the replacement cost to be and the way that a lot of stuff in this small town (not just insurance) looks an awful lot like price-fixing.

S Folinsky

I did treat the comment as serious, but it is a common mis-understanding. No harm, no foul.

By the way, it is not uncommon for different agents from the same company to give different quotes. We have a particularly good agent who will massage the insurance application to get the best coverage for the best rate. It is an art.