Just wanted to bounce something off the group.
I have recently received a quote from Farmers insurance for home-
owners. They put the price at rebuilding the home at about $181,000
but the tax roles list my house at $100,000. Should my house burn to
the ground, would it indeed cost $181,000 to rebuild or is Farmers
just padding the coverage?
Tax assessments have nothing to do with real cost. The tax assessor places
a market value on a house and by law, the actual assessment is a percentage
of that. The tax mil rate is set by dividing up the town budget by the total
value of the real estate on the tax roles. It has nothing to do with the
real cost of rebuilding. That is a function of the design, material cost,
and labor to repair it.
As a homeowner, learn the budget process, learn about re-evaluation, and go
to the town meetings and voice your opinion. Only educated taxpayers can
control the local politicians.
I forgot to mention, learn about co-insurance. That is important if you
ever think about reducing the amount of insurance you have just to reduce
the premiums. If you house is worth $180,000, you may figure it will not be
totally destroyed so you only want $90,000 worth of insurance. Then you
have a claim for say, $20,000. Since you elected to have only half the
house insured, they will only pay half and you get to pay the other $10,000.
Typical insurance rates for cost of replacement range from $110 - $150 per
square foot. IF your county has your house listed below this figure, you'd
be best off just keeping your mouth shut. That is, unless you like paying
more personal property tax. Ours are all rated about 20% HIGHER that what
we could ever hope to get for them and we've appealed and appealed and
nothing changes. Enjoy it whilst you can.
More often, homes are under-insured, not over-insured.
Your tax valuation is the cash value of a used house, your insurance
would have to pay to build a new house.
The coverage for your home would be calculated based on the cost to
rebuild it, given its size, style, features, and local cost of
construction. Costs vary widely depending on location, around here,
$100/square foot gets a plain square box tract house, and high-quality
construction can exceed $200/sq ft.
email@example.com is Joshua Putnam
Tax values do not equal selling price or replacement cost. They are tax
value. In many areas they are, by law, a % of 'True Value" which would be
selling price in a free market. Some areas mix the land and the home
together some show them separately.
I have no way of knowing what your home would cost to replace. Farmer's
should have people who's job it is to set that value. You could call and
ask how they come up with their values and you might also ask how that
effects you (higher cost of premiums and more complete coverage)
Typically insurers use a replacement cost estimator from Marshall &
Swift/Beokh. This gives a base cost per square foot depending on the
style of construction, with adjustments for all sorts of features such
as number of bathrooms, style of kitchen, fireplaces, sliding doors,
central air conditioning, etc.
As others have noted, this has nothing to do with market value.
Depending on your local market, homes could be selling well above
replacement cost if the market is hot, or well below replacement cost if
the local economy is depressed.
Taking my own house as an example, I paid $131,000. At least $60,000 of
that is the value of the empty lot, so the market value of the house was
$71,000 or less. Buit it's a hundred-year-old Dutch Colonial with wood
floors, high ceilings, wide crown molding, etc. Rebuilding it in
today's construction market would be around $200/square foot.
firstname.lastname@example.org is Joshua Putnam
That's what the current house would sell for.
For *replacement*, it's what a comparable house would cost to be built on that
site, with current codes and current construction costs. Quite a different
I meant the under slab/ground plumbing.
We had a hippie try to commit suicide in our neighborhood by running a hose
from the gas log lighter to the bedroom. Then he went to sleep. A couple of
hours later he woke up and lit a joint.
After clearing away the rubble, a new house was built on the old slab,
exactly like the first. But without the hippie.
Other responses mostly pretty good -- only one point I didn't see
mentioned. There's a thing about "underinsured" that can bite you if
you decide to insure the property for less than (typically) 90% of
replacement value. This is a clause that is there precisely to
prevent a deliberate underevaluation to obtain lower premiums,
typically to satisfy mortgagee's requirements. Be certain to have a
realistic replacement evaluation and if not comfortable with the
insurance company's estimate, get a ballpark estimate from other
sources for comparison. You can also get what is known as an
"AV" (agreed value) policy where the contract states the stated value
is the "agreed value" and there will be no question on paying up to
the limit in case of loss.
The under-insured clause could be a bite in the case of the suggested
"co-insured" plan unless that were made clear and agreed to by the
insurance carrier in the policy at the time of the underwriting. In
order for them to agree, you would probably have to place the funds in
an escrow account or otherwise encumber other funds in some manner.
It's fairly common for larger businesses to "self-insure" some risks,
but far less so for individuals to do so (on a formally planned basis,
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