Home Owners Ins - Replacement Dwelling Cost?

comkowAugust 1, 2006


Our H/O and auto insurance policies are up for renewal next month, so we figured we should shop and compare two other reputable, nationwide companies to our current carrier. Our current carrier wants the replacement cost at $480k. That is up $30k from prior year. The two other companies I have received quotes from, both came up with computer generated replacement costs of $390k. Then, those two companies will pay another 20% on top of the 100% if needed. I have asked both companies to have dwelling at $425k or $450k. The one carrier is still less expensive by $700 to our current carrier, so it is really a no brainer in switching, but I am trying to understand why the replacement costs vary at two coming in at $390k and the one at $490k.

I called our current company and they didn't have any explanation except "Be careful and make sure you are fully insured".

I know the real estate market doesn't necessarily reflect the construction market, but we could only sell our house for approx. $75k more than the $480k replacement cost and that includes the land.

How do you know what "fully insured" is? Does anyone know what the construction cost per sq ft is in

the NY tri-state area? We are in lower NY state, on the NJ border.

Thanks for any advice.

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It is safe to use between $100-125 sq/ft for replacement purposes (this will include exterior/interior walls, appliances, and bathroom/kitchen fixtures).

    Bookmark   August 2, 2006 at 12:53PM
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I've been wondering the same thing - especially after we recently remodeled our kitchen. You can remodel a kitchen for $10,000 or $100,000 - depending on what you put in it. When they calculate the cost of replacing your house, I wonder whether they're calculating replacing what you really have or perhaps something less. Based on the various things we've remodeled/replaced lately, I feel like I'd be unable to replace my house as it is with the level of insurance I have. I might be able to put up another house with the same square footage but I wonder about whether or not it would have the same type and quality of materials.

    Bookmark   August 2, 2006 at 5:59PM
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Can't help you with your local area, but we have been using $175 a square to estimate our costs. The selling market has nothing to do with what it would cost you to replace your home. Especially if your home is older and has some nice finishes like woodwork and flooring. Our insurance company will just use the standard $100 per square if we don't choose something different. That would get me a builder grade, small house on this lot. If I'm lucky.

We have room in our policy for things like hiring an arch. since building on this lot again would take some manuvering. That's typically 18% of the construction cost here. We also have built in housing costs while we would be waiting for our home to be rebuilt. That would be a low estimate of $25,000 for the year it would take to rebuild. I'm not interested in have a quick two month builder model throw up in place of our home, so it wouldn't be a fast job. We don't want builder grade finishes and we want things like hot water heat, which is expensive and not being put in new homes due to the cost.

Have the companies sit down with you and find out exactly what is being covered. We use State Farm and have upped our coverage significantly over the past three years due to increased building costs. It would cost me more to rebuild on this lot than I could currently sell the house and land for. That's not the issue. I want the home rebuilt.


    Bookmark   August 2, 2006 at 6:13PM
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"It is safe to use between $100-125 sq/ft for replacement purposes (this will include exterior/interior walls, appliances, and bathroom/kitchen fixtures)."

Safe? There is absolutely no way you can pull out a number like that and expect it to be safe. Ours is $225 per SF and we don't even live in an expensive metro area.

    Bookmark   August 18, 2006 at 4:56PM
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Our insurance agent said that there are calculations for premium and standard levels of replacement. He asked if we would be satisfied to replace our 150 year old stone house with a modern equivalent. We would not so we went with the premium calculation.

    Bookmark   August 19, 2006 at 8:35AM
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I'm a partially retired insurance agent and have found the following page to be pretty darn accurate for the bottom line on rebuilding costs.

This estimator will not only ask you how many foundation breaks you have but number of heating & A/C units.

Unusual homes or very old construction won't cost more to rebuild IF you replace them with standard construction (duh) but it's when you want to replace them with the same that will cause the cost of replacement to skyrocket - but it's worth it if you bought a Georgian revival or Victorian or Adobe b/c you love 'em! Some cases I've seen a 200% increase over contemporary construction (think gingerbread & lattice).

Good luck.

Here is a link that might be useful: Detailed Building Cost Estimator

    Bookmark   August 23, 2006 at 2:21PM
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Staggers the imagination, doesn't it!
Thank you for the link.

    Bookmark   August 27, 2006 at 8:03PM
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Interesting thread! I do insurance appraisals for a living.
Comments: always amazed at people who throw out statements like 'you can rebuild at so much per square foot.' Don't listen to them. At the very least, go to the site posted by nutynetie in this thread. I just now used that system to compare results in a known house between it and a real insurance appraisal. I found it to be about 15% low for my area in South Jersey, and the same house set down in Rockland County NY, where I assume the original poster is from, was about 33% low for that house. The website system also showed the same cost for several NJ areas that I am familiar with, which should have a 10-15% differential. So this is a very rough system, and you should probably add something to its final totals if you're going to use it to insure your house.
If you have put in a new kitchen etc, and it is of a higher quality (e.g., you had formica before, now you have granite or silestone) be sure to tell your insurance agent, and add at least part of the installation cost (not the entire cost because you're trying to account for the difference between what you replaced and what you replaced it with).
As Gloria said, don't consider the selling price in trying to calculate replacement cost--they have nothing to do with each other. And, in some circumstances, building owners who carry less than full replacement cost and have a partial loss will not be paid 100% of that loss by the insurer because of something called co-insurance. Ask your insurance agent.
Unfortunately, most insurance companies use something pretty inaccurate to calculate building replacement costs, at least PRIOR to losses (after the loss is when they may take a more thorough look, which is to their benefit, not yours). They actually use something similar to the web site system mentioned above. Exception: if you have a high-end house, there are a couple of companies (one, especially) that specialize in them, your independent insurance agent should know who they are. These companies will send out someone to appraise your house in a fairly thorough fashion. I have seen their estimates be way high, IMO, but that's not terrible because they will really take good care of you if you have a claim. The overinsurance is the price you pay for superlative service.
For the person with the stone house, I would be very suspicious of any numbers arrived at by using a system of "Standard" or "Premium" costs. At the very least, find someone in your area who builds in stone today, and offer to pay him something for his time to take a look a give you a number. Probably will cost little or nothing. Also be careful if you have special flooring, like 'heart of pine' or curly maple. To replace things like these means going to someone who dismantles old buildings to resell the materials.
Finally, your insurance agent is probably a good guy --- you want to know how much to insure for, and he wants to accomodate you, but take whatever numbers he or the insurance company gives you with a grain of salt, even if they give you Guaranteed Replacement Cost (don't know if that's still available).

    Bookmark   September 2, 2006 at 12:02PM
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