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| Title: | Market Investing |
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| Moderator: | 2155::michaud |
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| Created: | Thu Jan 23 1992 |
| Last Modified: | Thu Jun 05 1997 |
| Last Successful Update: | Fri Jun 06 1997 |
| Number of topics: | 1060 |
| Total number of notes: | 10477 |
365.0. "Home Insurance" by AKOCOA::GLANTZ () Wed Jan 27 1993 12:48
How do you estimate the value of your home for property insurance coverage?
I have always used the Home Cost Estimator, a simple procedure provided by my
insurance company. It involves counting rooms and square footage, multiplying
by the cost/ft� to replace, and tweaking for overall construction quality.
Recently, my insurance company offered me a special deal if I would allow
*them* to do the estimate. They did a drive-by, and they came up with a
replacement cost figure of $5K less. Since the insurance company offered to
"stand by" their assessment; i.e., they would fix my house no matter what the
actual replacement cost turned out to be, I replied, "Where do I sign?".
Coincidentally, at the same time as my policy renewal, I refinanced my mortgage.
The appraiser for the mortgage company actually came into the house, and she
made mesurements and took pictures. Her appraisal came in nearly 20% less
than the insurance company's.
My guess is that insurance companies tend to OVERestimate replacement value,
while mortgage lenders tend to UNDERestimate. But 20%?
When I called this difference to the attention of my insurance company, they
agreed to use the mortgage appraiser's data and run it through a procedure
called the Boeck Report. It turns out a major reason the two appraisals
differed turned on whether the construction cost per square foot in my ZIP
code was $60.31 or $86 (a 30% difference).
I guess we engineers expect the world at large to achieve closer tolerances;
but the upshot of it all is that this morning my insurance company agreed to
the lower appraisal. (Actually, they agreed to the lower appraisal + $5K; but
everyone needs to look valued in these your-job-is-at-risk times, don't they?)
Of course, with the lower appraisal comes a lower insurance premium. A
healthy refund check is in the mail.
| T.R | Title | User | Personal
Name | Date | Lines |
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| 365.1 | | TUXEDO::YANKES | | Wed Jan 27 1993 14:10 | 27 |
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Re: .0
Property insurance value = the cost of rebuilding the house if it
burns down. Mortgage appraisal value = the amount of money that
someone will give you to buy your house. The two figures do not have
to be the same. As examples:
1) Building house X on lot A costs roughly the same (presuming the
lots are fundamentally the same) as building it on lot B in the same area,
but the two houses could have dramatically different market values
depending upon their locations.
2) House A and house B could both have the same market value, but
differ dramatically in the cost of building if A is a small house on a
huge lot (where you are paying for the expanse of land) and B is a
larger house but on a significantly smaller lot.
So to answer your question about how I estimate the value of my home
for property insurance coverage? I don't mess around in this kind of
area -- I'll let the insurance agency do the rebuilding estimates and
tell me how much the insurance will cost. I'll shop around for the
best insurance rate, but I don't want to risk my house burning down and
the insurance company coming back to say "but you told us to insure it
for only this amount!"
-craig
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| 365.2 | | AKOCOA::GLANTZ | | Wed Jan 27 1993 16:36 | 14 |
| To provide more clarity in .0:
The mortgage appraiser actually did two appraisals, one by market value and
the other by reconstruction cost. It is the latter that I FAXed to my
insurance company that lead to their own reappraisal and a subsequent
reduction of my home insurance premium.
Comparing the market value to the reconstruction cost, in my town at least,
the value of the lot exceeds the value of the structure on that lot.
Of course, any reconstruction appraisal yields an unrealistically high number.
That is because it assumes the entire structure will be rebuilt, including the
foundation. Since concrete is rather sturdy, only something like a gas
explosion would reduce everything to rubble.
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