Getting Insurance to buy

larkeMarch 7, 2010

If an insce co. appraises a house for replacement value, is that likely to indicate that a sale is in trouble? Which way do these things generally go? The place is old, and large, but should one assume the sale is in trouble?

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brickeyee

Homeowners policies are always based on replacement value.

For older houses there is often additional insurance that can be purchased to replace plaster walls, mud bed tile jobs.

The 'standard' replacement will be drywall and cement board for tile.

    Bookmark   March 7, 2010 at 9:03AM
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larke

I should clarify my question... Should I be worried about completing the sale of my (old & partly ex-commercial space) house because buyers insce. co. wants to do an appraisal of replacement value?

    Bookmark   March 7, 2010 at 9:37AM
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brickeyee

What other limit are they going to use?

    Bookmark   March 7, 2010 at 7:19PM
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sylviatexas1

Market value & replacement cost are different:

Market value is typically less than replacement cost, so bigger, older homes often must be insured for more than the buyer pays.

Insurance companies like to insure for what it would cost to reproduce the building so that they get enough premiums for the risk that they take on partial losses.

example:

You have home that you bought for $75,000.
It would cost $100,000 to re-build it.
You insure the house for $75,000.

You have a kitchen fire that costs $10,000 for damage repair.

The insurance company must repair the kitchen (less your deductible) even though it collected premiums on only 75% of replacement cost.

so, to (finally) answer your question, no, I wouldn't assume the sale is in trouble.

    Bookmark   March 7, 2010 at 7:58PM
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larke

Thank you Sylvia (my middle name :-). The living space here is under 1,000 sq', but is attached inside to a huge old and unfinished ex-commercial area - seemed like a great idea at the time for various reasons, but I just want out now so want to complete the sale without these hassles. Long story... thanks again.

    Bookmark   March 7, 2010 at 9:48PM
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brickeyee

"You have home that you bought for $75,000.
It would cost $100,000 to re-build it.
You insure the house for $75,000.

You have a kitchen fire that costs $10,000 for damage repair.

The insurance company must repair the kitchen (less your deductible) even though it collected premiums on only 75% of replacement cost."

But have a fire that exceeds the value of the policy or a total loss and all you get is the value you insured for.

Even replacement value policies can contain caps, sometimes as no more than x% above the insured value.
The insurance companies did this when replacement grew well above sale value, and when the availability of 'like kind' replacement for older properties became available.

There are also provisions to bring building s up to the required code for total losses.
It can be as simple as exposing foundation footers, or as bad as actually having to replace footers to bring them into compliance with a present building code.
Electrical and plumbing sometimes falls into he same boat, but can also be required without a total loss.

    Bookmark   March 8, 2010 at 10:39AM
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cmarlin20

"You have home that you bought for $75,000.
It would cost $100,000 to re-build it.
You insure the house for $75,000.

You have a kitchen fire that costs $10,000 for damage repair.

The insurance company must repair the kitchen (less your deductible) even though it collected premiums on only 75% of replacement cost."

But have a fire that exceeds the value of the policy or a total loss and all you get is the value you insured for.
A policy may also have a penalty clause that only pays the % of insured limit you have.
In the above example the policy would only pay 75% of any claim regardless of policy limit since the insured under-insured the property.
This won't matter to you if you are selling, but it is good to know in the future when buying insurance, under insuring may not be the bargain it appears to be..

    Bookmark   March 9, 2010 at 6:43PM
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