Surge in Home Prices Leaves Homeowners Underinsured
From RealEstateJournal.com
It’s the downside of the housing boom: Many homeowners are now significantly underinsured.Americans have been pouring money into their homes in recent years, adding everything from marble bathrooms to fancy backyard barbecues: Last year alone, spending on improvements like these hit an estimated $155 billion, up 27% from two years earlier. At the same time, the global boom in commodities prices — lumber, copper piping and other necessities — as well as rising labor costs has pushed up replacement costs by 7% a year since 2001.
As a result, people who haven’t updated their insurance policies in a few years may now be underestimating what it would cost to rebuild their homes, particularly in high-priced markets.
According to a survey to be released soon by Marshall & Swift/Boeckh LLC, a firm that supplies building-cost data to insurers, 58% of houses are undervalued for insurance purposes. Of those, the average homeowner has enough insurance to rebuild only about 80% of his or her house, according to the survey. [more...]
In my personal experience, I would expect to spend about $250/sqft for replacement or new construction costs in San Francisco. That’s potentially a high estimate, but if you have nicer finish work in your home, you won’t want to replace it with builder-grade finishes in the event of a total loss. For example, if your house is 1650 sqft, that would equal $412,000 in rebuilding costs. I wouldn’t want to have anything less than that to rebuild my house, knowing how much construction and labor costs have escalated in the past couple of years.
It might be a good idea to apply this $250/sqft figure to your house and cross-check that with your insured value. If you’re much lower than that, you might want to consider upping your coverage. The difference in the yearly cost isn’t that much compared to the headaches you might go through if you’re under-insured.
And don’t forget to double-check your liability coverage as well. If your net worth exceeds your liability coverage, you could be at risk in the event that someone were to trip over a crack in the sidewalk in front of your house, for example.
Surge in Home Prices Leaves Homeowners Underinsured [RealEstateJournal.com]
Ways to Avoid Getting Dropped By Your Home Insurance Provider [SFHomeBlog]
Insurers Offer Special Protection To High-End Homeowners [SFHomeBlog]
Quake insurance could get cheaper [SFHomeBlog]
Interesting that you estimate the construction cost at $250 sq/ft — do you think that is a good proxy for figuring out the renovation costs here in San Francisco?
I’ve seen some homes that look like they need major renovations (plumbing, electrical, new roof, potentially new additions etc.)and have always wondered what it would cost to redo. I understand there are high variations depending on the finishes, but is $250 reasonable?
In some cases, where the building is turely a “tear down” are the cost higher or lower?
Anonymous at September 3rd, 2006 at 10:29 pm ( )That’s obviously a rough figure. If you’re remodeling a Victorian properly in San Francisco, look at around $400/sqft…
For new construction (tear downs included), the $250/sqft figure is probably safe. I just watched a client build a house with very nice finishes (not top of the line) for $250/sqft. This doesn’t include carrying costs for the time that you’re waiting for permits, etc, but the right insurance company will provide for loss of use as well.
As always, consult a general contractor in your neighborhood for the most exact price/sqft construction quote and your insurance company for the specifics for your policy.
Matt Lanning at September 5th, 2006 at 4:37 am ( )Excellent post Matt, this is a huge issue that generally does not see the light of day. Many homeowners also desire the lowest replacement cost estimate as that gives the lowest annual insurance premium. The funny thing is that the firm who did the study, Marshall & Swift/Boeckh LLC, is partly to blame for the whole mess. They are the main provider of replacement costs for the insurance industry and their replacement cost estimates are ridiculously low for the area – generally around $125 to $150 per square foot for a house. From my experience, your $250/sf estimate is much more accurate for a typical good quality home in the area. I spoke with an insurance agent and he mentioned another way to get the proper coverage on your home was to allow a lower price per square foot replacement cost (say $150/sf) and then get a rider on your insurance policy which increases your coverage to 150% to 200% of the replacement cost as this can often be a cheaper method to get full coverage for your house than just going with a high $/sf replacement cost. Thanks for your timely information once again.
Anonymous at September 8th, 2006 at 7:37 pm ( )