A common question we get is why do I have to insure my house for the insurance company amount when my home is valued for less?

 

The replacement cost of your home is the cost of you hiring a contractor to rebuild your house based on the square feet minus the value of the land.

 

The market value is the appraisal value of homes in your neighborhood based recent home sales.

The market value can fluctuate based on many factors that cause your market value to go up or down.

 

An example in the New Orleans area is a 2100 square foot home built in a quiet, safe neighborhood can increase in value but a 2100 square foot home in a declining neighborhood can lose market value.

So the same size house with the same features could differ in market value from $200,000-$500,000 to $80,000-$150,000 depending on the neighborhood.

Insurance companies don’t care about the market value of your home.

The insured value is based on the current cost of hiring a contractor to rebuild.

This figure could also increase because it is based on the cost of materials to rebuild your house.

A 2100 square foot house could cost $125/square foot to rebuild today but after another hurricane, the cost of materials to rebuild could increase and run up the cost to rebuild your house at $175/square foot.

Here is an example of two houses in different neighborhoods

 

FEATURESHOUSE 1HOUSE 2
Square footage25002500
Year built19701970
Market Value420,000180,000
Replacement Cost300,000300,000

 

Also remember to remove the land value when you are trying to determine the replacement cost of your house.

If your house burns down or is destroyed by a tornado,  you will always have the land.

Insurance companies can offer a guide or rule of thumb on the cost to rebuild, but it is only a guide.

A licensed contractor or home builder can tell the current price per square foot to rebuild in today’s market.

Here is a simple guide you can use.

Craftsman has created a free guide.

You input your home’s features and they will email you a report.

The more information you input, the more accurate the report will be, but once again, its just a guide and only a local contractor will know the current cost per square foot in our area.

*Try the guide here

http://www.building-cost.net/Valuation/Start

 

*this is a third party site for an example only, we don’t endorse this site and an insurance company underwriter may not accept the report as accurate.