I bought a foreclosed property in july for $825k. The home insurance company did an appraisal and found that the replacement cost is $1,700k. Based on that, they want to raise the annual premium from $1,500 to $2,500.I looked at many items in their appraisal, and it seems very inflated. The new HVAC that I put in for $30k is listed as costing $55k . Floors are listed at $170k when they should be $65k at most. The $100 countertop microwave is listed as "high-end built-in microwave". If I went through each item I bet the replacement cost would be 1 million at most.How do I go about fighting the company's replacement cost estimate ?I have notified my agent of the discrepancies I have found so far, but the insurance co wants the increased premium by october 1.
It would seem the insurer wants to sell you more insurance....something insurers routinely do.I'd consider a couple of options.The easy one is to find another insurer.But if your current insurer will consider it, you could have a disinterested home appraiser value the replacement cost for the various components of your home. But if you do this, I'd make sure that the insurer will accept their recommendations.BruceM
http://www.marshallswift.com/c-1-residential-products.aspx is the standard replacement cost computation service used by the Insurance industry. I think their estimates tend to be somewhat on the high side. You can buy one of their books, for a little over $300, or maybe find one in a library, that's not overly dated. Your agent probably has access to their software, and won't/shouldn't charge for walking through a re-computation with you... Measure the building, get the dimensions on:DrywallPlaster - old fashioned horsehair vs skim coat Hardwood floorsCarpet over hardwood, or softwoodTile area - wall area and floor area - type of tyleWhether you have economy, builder's grade or custom bath(s) and kitchenWhat percentage of you basement is finished and to what degreeType and extent of siding, if anySolid brick or brick veneerType of doors and windowsEnclosures - back/front porchAttached decksI don't think that appraisers tend to deal with replacement costs. A General Contractor does. A journeyman carpenter's training includes computing how many boards and nails are needed to build a structure, for example. An electrician can tell you how much wire, receptacles, switches, lights and a load center will cost for a structure. A plumber can tell you what the plumbing will cost... A respectable GC deals with all of these artisan contractors and can tell you, pretty closely, what it will cost to rebuild a house comparable to what you have. Here, near St Louis, the cost tends to run around $100/sq ft, on average - Labor and material costs might be different where you live, and the design of your home *may* be different that the average... I suspect that the home that Jimmy Connors (professional tennis player) had built near where I live would cost quite a bit more and the architecture of some of the older homes, and definitely some of the historic homes, in the area would cost quite a bit more to authentically replicate on a rebuild.FWIW,Bob
We had the same thing happen with our new home (about 18 months ago). Our regular insurer came in at $80k higher RC than we paid. Another (through the builder) came it AT the number. In checking I discovered that you DO somewhat need to factor in that a new builder has better access to material, especially for a standard home as exists in our 55+ community. You also need to insure that similar material is specified, especially if you have upgrades (which we did). Then you have the cost of clearing the lot, alternative living, etc. I think the difference was about $100 or so per year, so after a little bargaining, I took the higher company. Also check on the value of the land. Sometimes that can be a difference too.Hockeypop
Also check on the value of the land. Sometimes that can be a difference too.HockeypopYes, land should never be included in replacement cost computation for a Homeowners Insurance policy. The value of the land isn't covered in the policy.Bob
Also need to remember that insurance is looking at reconstruction cost rather than replacement cost. If my house burned to the ground, I could replace it by buying another house for ten of thousands of dollars less than I could rebuild it with comparable materials and workmanship. This is especially true in older homes.
BruceCM,I'm already asking my agent which is not affiliated with a single insurance co to look at other insurers. I don't know if the current insurance co will take another appraisal or not.NoIDAtAll,The appraiser the insurance company hired is supposed to deal with replacement cost, since they want me to insure the place for its replacement value. The very first page states "replacement cost summary".This is how it reads :REPLACEMENT COST SUMMARY:SQ.FT. X $/SQ.FT. = TOTALLiving Area 4911 X 308.26 = $1,513,864.86Built-In Garage 623 X 60.29 = $37,560.67Covered Porch 850 X 50.24 = $42,704.00Enclosed Porch 429 X 125.59 = $53,878.11Decking 245 X 37.68 = $9,231.60Balcony 869 X 50.24 = $43,658.56Combined Total $1,700,898Rounded Total $1,701,000Component Cost BreakdownFoundation $48,981.46Exterior Wall Framing $44,676.99Roof Framing $34,288.70Interior Wall Framing $53,833.42Floor Structure $59,995.59Insulation $14,227.05Exterior Finish & Trim $49,905.54Roofing and Flashing $33,002.88Windows $48,742.42Exterior Doors $31,331.32Floor Coverings $139,789.72Interior Walls $36,894.13Wall Coverings $29,950.33Moldings $10,761.31Doors & Hardware $32,791.85Light Fixtures $30,880.16Ceilings and Coverings $62,640.13Misc. Finish Items $136,521.36Bathroom Sinks, Tubs, Toilets, etc. $33,756.34Bathroom Cabinets/Countertops $16,635.10Kitchen Cabinets/Countertops $80,307.89Kitchen Built-in Appliances $12,986.73Plumbing $27,155.90Electrical $46,398.32HVAC $45,790.80Fireplaces/Chimneys $65,513.63Specialty Items $65,083.38Porches, Decks, etc. $124,560.23Subtotal $1,417,402.67Contractor Overhead $141,741.48Contractor Profit $141,741.48Demolition and Debris Removal $0.00Total $1,700,885.63A contractor that has done many improvements on my home recently said he could rebuild the place better for 1.2 to 1.3 million. Not 1.7 million. Even with Santa Clara county's high labor prices, 1.7 is way inflated.Also, the square footage numbers seems inflated, the county records say 4662 living area, not 4911, but maybe there has been an unpermitted addition. Or maybe the insurance company is just full of it. I had no idea about all the other numbers, never measured them. There are sketches in the report.The land value is not included in the replacement. The lot is probably worth about 150k - 200k.hockeypop,Mine isn't a recently built home, so I can't readily compare the construction price. How much higher was the insurance company's estimate in percentage ?I do have upgrades and many things custom, but still, things just don't add up when I review many line items such as the ones I just redid over the summer like the HVAC. I know how much I paid and it was much less than the insurance company says.rosewine,The company is talking about replacing the home with a home of the same caliber on the same lot. Not buying another home. In other words, it is reconstruction cost.
A contractor that has done many improvements on my home recently said he could rebuild the place better for 1.2 to 1.3 million. Not 1.7 million. Even with Santa Clara county's high labor prices, 1.7 is way inflated.IMO, agents, and insurers that they represent, will tend to over-valuate the cost of reconstruction, for 2 reasons - Under-valuating the cost of reconstruction/replacement cost leaves an opening for an E&O claim, and undervaluation results in a lower premium to service a loss. IF the contractor will put $1.3 million in writing on his letterhead as a reconstruction cost, from the ground up, has a respectable reputation and sound financial credentials, I would be very willing to go with that.Bob
The company is talking about replacing the home with a home of the same caliber on the same lot. Not buying another home. In other words, it is reconstruction cost. That's good. It's a peeve of mine since "reconstruction" and "replacement" cost can be two totally different things depending on the property.
The company is talking about replacing the home with a home of the same caliber on the same lot. Not buying another home. In other words, it is reconstruction cost.That's pretty common with a replacement adjustment cost based policy. If you don't reconstruct on the same lot, most policies I've read revert to an ACV adjustment - ACV (Actual Cash Value), in insurance jargon, equates to "Replacement Cost, less Depreciation." A reason insurers won't pay full "replacement cost" to rebuild on a different lot is that labor and material costs could vary, sometimes pretty significantly, from one location to another. Material and labor costs in NYC or Beverly Hills, for example, might run quite a bit higher than many other parts of the country.
NoIDAtAll,I wouldn't want to go with ACV. We paid way less than the house costs to build, and there is no reason another buyer would pay more, at least not in the current market. I'm not sure if the lender, which requires the insurance, will allow switching to ACV instead of replacement cost.
I wouldn't want to go with ACV. We paid way less than the house costs to build, and there is no reason another buyer would pay moreACV doesn't, necessarily, equate to a market value base adjustment. In some instances, ACV can come very close to replacement cost. They are different adjustment bases. Say, if the roof was recently replaced, for example, very little depreciation would/should be taken if it where damaged in a hail storm, for example - Market Value considerations *might* amount to a lower adjustment of such a loss, depending on how the respective policies are written.All of the improvements that you completed, including the HVAC system that you installed for $30k, that the replacement cost "computation" upped to $55k, should be adequately covered under an ACV-based policy. Much depends on what you have and did, how much you're willing to pay for insurance, that may exceed the risk of losing what you invested and how readily available comparable properties are that would satisfy you at comparable prices.You don't want to under-insure a property with a replacement cost adjustment basis - Coinsurance penalties for under-insuring *can* be pretty significant, especially if you don't have an adequate "guaranteed replacement cost" clause in you policy.Properly insuring properties, w/o over-insuring, is probably one of the more challenging chores insureds and agents cross.Bob
All of the improvements that you completed, including the HVAC system that you installed for $30k, that the replacement cost "computation" upped to $55kKnocking the $55k "estimated" down to the $30K actual cost should be a no-brainer correction to the replacement cost computation that you should be able to pursue.Bob <- still thinks marshall-swift (the standard generally accepted and used in the insurance industry) tends to overvalue, I suspect, perhaps, because they don't care to be sued for undervaluing. That the replacement cost estimate valued your $30K HVAC system at almost twice its actual cost is an indication.
I still haven't found less expensive insurance. The Safeco premium on my home has gone up from 1430 last year to 3062 as of this friday. It was already paid from escrow.Now, the only good news. I had a condo policy with Mercury which was about $500 for my old townhome. The property is now being rented. Mercury doesn't want to insure rentals and sent me a cancellation. My new policy is with Safeco and dropped to $225. Unfortunately, Safeco does not offer discounts for having multiple home policies.Bad news : our auto policy is going up quite a bit. Firstable, in February we bought a new car, 2011 Prius, to replace a 2001 Prius. And the auto policy was with Mercury. We also had a multi-policy discount, due to having a home policy on the townhome. This discount will be going away. When we added the new car, the premium went up from about $800 every 6 months to $1045 every 6 months . I have not yet been notified by the insurer, but I expect it will go to about $1200 every 6 months once the discount goes away. This is for two cars - a 2007 Prius being driven 10000 miles a year, and a 2011 Prius 15000 miles. Both good drivers. Full coverage.This is a total of $5368 a year for two cars and two homes - but actually one of the homes costs only $215/year, so it barely makes a dent. I project the total will go up to about $5700 a year once the Mercury multi-policy discount goes away.I have been shopping for new insurance, but not been having much luck.One company gave me a quote that would be about $4500 a year with a single insurer and $2.6 million of coverage on the home, but it requires me to install an alarm at our new residence. Alarms tend to cost around $30/month, plus installation cost. This would negate a good chunk of the insurance savings, at least in the first year. Also, I hate alarms, and I am not keen on signing any kind of long term alarm contract. I think it is totally useless on a place with 11 outside doors, 29 windows, and 3 skylights, which is just at the outer edge of wireless phone carriers. If somebody wants to get in, they can just cut the outside cable, which is how we get telephone service, and comes right at the front door, and then break in. We have no POTS phone line but if we did, it would probably be easy to cut as well. An alarm is a complete waste of money as far as I am concerned, but a big inconvenience for the occupants.I'm thinking of putting a token alarm system just to satisfy the insurer. With one sensor, on one of the doors we never use. But even that seems very unsatisfying. Does anyone know what the cheapest alarm service is that does not require a long term contract ?Also, if anyone knows of an insurer that will not insist on an alarm system, but does not have insanely high rates, I would be very grateful.
Try Liberty Mutual. I just save in excess of 2 K annually on cars, and two homes
I agree. I saved 50% on car insurance with lower deductible to boot!
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