Home Market Value vs Replacement Cost
Home Market Value vs Replacement Cost
Art Glasgow, Peck-Glasgow Insurance
February 23, 2011
The Great Recession has touched every person in our country. The downturn in the economy has been especially hard on the real estate market. Not only are values down, financing is next to impossible to find for the average consumer. Home prices countrywide are down from 15-35% on average, with some locations experiencing even more drastic falls from the mid decade peak in housing prices.
With real estate prices being down, you may ponder the question…. “Why has my homeowner insurance premiums not fallen as well?” The fact is, your home’s market value is not a key determiner of what you pay for home insurance.
Market values are based on location! The local job market, property taxes, and the condition of the neighborhood are factors which influence the actual price of homes in a neighborhood. None of these factors influence insurance premiums, as homeowner insurance covers the cost to rebuild your home exactly as it is now, using the same materials and workmanship.
The cost of building materials have continued to increase as has the cost of labor. Even during the downturn, industry observers have continued to see upward pricing trends, which ultimately drive up the cost of rebuilding your home.
There are even extra costs associated with re-building that many home owners do not think of. Primarily, the demolition and removal of a destroyed home must occur before re-building can begin. Local ordinances can drive up the cost of re-building. Contractors also charge extra for re-builds, as there is always uncertainty in what surprises will crop up during the project.
Historic homes present their own set of challenges, as many of the common building materials may have changed as well as the craftsmanship to do it. Specialty materials and labor costs extra money! Historical ordinances can also add to the cost of rebuilding.
Don’t go underinsured. Please utilize the services of a reputable insurance agent, who can make sure that you are protected! Ignorance can cost you everything you own, and it does not cost more to utilize a true professional!