Insuring your home up to now has been a relatively easy process. Your agent would come up with a replacement cost estimate and you would then mentally compare that to relative market value, the value on your tax statement, and possibly your investment in the home. Well folks, thanks to the unique times we are in, all of these numbers may now be miles apart.
- Construction material continues to escalate while labor may or may not be affected by a slow-down in residential housing. Those costs will affect your replacement cost.
- With housing sales where they are at this time, and the excess of available houses on the market, the price you can get for your home is generally lower, compared to where they were just 24 months ago. Thus market value is down.
- Many homeowners have 90-125% of their current home market value in outstanding mortgage obligations. Numerous appraisals were done during the peak of the real estate market where unfortunately, appraisers simply set values at sale price or higher, depending on the objective of the buyer.
- Finally, with diminishing tax roles, counties are hesitant to value homes at their current market values, thus creating yet another value for the home.
So in these scenarios, you could have four different values. An example is as follows: your agent tells you that your home's rebuild cost is $400,000. An appraised market value as of March 2009 for the same structure might be $300,000. The Mortgage/s placed on the home total $350,000 and finally the County is hesitant to reduce the value due to loss of tax revenue and considers the value $325,000. What then is the proper amount to insure your home for?
Believe it or not, the only value that matters when properly insuring your home is the replacement cost value. That represents building your house new, without considering property, utilities, foundation, etc. The other values we discussed, consider all of these things and also factor in the depreciation and location of your home.
The key is to make sure your agent and insuring company are estimating your replacement cost correctly. Our agency would be more than happy to help you with this process and offer you a competitive premium for your homeowner's policy. We certainly understand that the inconsistency between these values can be confusing, but with economic times being what they are, it's critical to properly insure your home.
If you have any questions or concerns, please do not hesitate to contact us. We have the tools to help you.