More often than not I get clients coming to me saying their
agent is over insuring their home.
“The
dwelling value is $X over what I paid for the home!”
“I
could never sell the home for that amount!”
“If I
had to rebuild this home, I could easily do it for $X amount. You wouldn’t have to purchase the land again…”
All very valid statements and reasonable arguments, but what
they don’t know is that there’s more to the story. Rebuilding a home is not the same as buying
an existing home, nor is the same as building a home from ground up.
Because of the common misconception, here is a list of
things that come into play with rebuilding a home after a total (or partial
loss):
·
Cost of
labor: Cost of labor is constantly increasing and an ever changing
market. Depending on the reason the home
was a total loss, there might be a shortage of labor (as there would be
following a hurricane, tornado or earthquake) or there might be no issues with
labor (as if there was a single home fire).
·
Demolition
and debris removal costs: People forget that after a total loss, there
typically are parts of the home that are still standing. These portions have to be torn down and
removed. Debris removal and demolition
costs can be costly.
·
Cost of
materials: Most insurance companies look to make you whole, some look to
put you back EXACTLY as you were before.
What’s the difference? If you had
marble flown in from Italy in your kitchen, some companies will replace it with
regular marble, some will have marble flown in from Italy. The cost of these materials can be very
different and some of these markets fluctuate much more often than others.
·
Building
permits: If you’re building a home (even if it’s rebuilding) you need to
apply for building permits. This takes
time, effort and money.
·
Architectural
drawings: Again, another thing that is necessary to rebuild a home. These also cost a pretty penny and take time.
So, no, maybe you cannot sell your home for what it would
cost to rebuild it and no, you do not have to purchase the land that your home
was already sitting on, but there are a lot of other factors that come into
play with replacement cost that may not matter in other situations.
Photo courtesy of:
Replacement cost includes value of the asset or building to be removed depending on the change of market value. Demolition costs, though a bit costly as what's being said here, can be properly administered as long as there is careful agreement between the demolition company and the owner of the property.
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