Have construction costs really gone up?
What is Replacement Cost?
How much insurance to buy?
What is Living Area?
What is Actual Cash Value?
What is Year Built?
What is Structure Quality?
Estimating tool – What is the reference number for?
Estimating tool – What if I can't find an item in the database?
Estimating tool – Do I have to use the description and/or pricing that is displayed?
Estimating tool – How many pictures can I upload to attach to each report?
Estimating tool – What is the difference between Calculate and Manual Dimensions?
Estimating tool – Can I be more specific than the area name I select?
Estimating tool - How do I know what Profit and Overhead and Tax has been applied to?
Estimating tool - I have applied Profit, Overhead and Tax to each line item but it not calculating?
Q: Have construction costs really gone up?A:
Construction costs are on the rise. The cost of rebuilding a home has risen about 3% a year on average for the past decade, said Gopal Ahluwalia, economist for the National Association of Home Builders. Many homeowners haven't updated their coverage to reflect those costs. "Often, the last time people think about their homeowners' insurance is when they get a mortgage," said Loretta Worters, spokeswoman for the Insurance Information Institute, a trade group. Bluebook International, who has been providing replacement cost data for over 40 years says, "on older homes in areas across the U.S., reconstruction costs can be more than the market value of the home!"
Replacement Cost is the amount needed to replace or repair your damaged property with materials of similar kind and quality, without deducting for depreciation (the decrease in the value of your home or personal property due to normal wear and tear).
Back to the top.
Q: How much insurance to buy?
A: When you buy a home, you need enough insurance to protect the structure and your personal possessions in the event of a loss. Some insurance policies are written with a limit that is equal to at least 80 percent of the value of the home. This means that if your home is damaged, you will have to pay for the damages up to the deductible. If you insure at less than 80 percent, you will have to pay a co-insurance penalty as well, which means that you will be responsible for more of the cost of damages.
Regardless of what percentage you choose, this should not reflect the cost of the land on which your home is built. Unfortunately, some banks and other lending institutions want you to buy insurance for the entire amount of the mortgage, including the cost of the land.
You need enough insurance to cover the cost of rebuilding your home at current construction costs. Don't include the cost of the land. And don't base your rebuilding costs on the price you paid for your home. The cost of rebuilding could be more or less than the price you paid or could sell it for today. Some banks require you to buy homeowners insurance to cover the amount of your mortgage. If the limit of your insurance policy is based on your mortgage, make sure it's enough to cover the cost of rebuilding. (If your mortgage is paid off, don't cancel your homeowners policy. Homeowners insurance protects your investment in your home.)
Some factors that will determine the cost of rebuilding your home:
(© Insurance Information Institute, Inc. - ALL RIGHTS RESERVED)
- Local construction costs
- The square footage of the structure
- The type of exterior wall construction — frame, masonry (brick or stone) or veneer
- The number of bathrooms and other rooms
- The type of roof and materials used
- Other structures on the premises such as garages, sheds
- Whether the house, or parts of it like the kitchen, were custom built
- Improvements - adding a bathroom, enlarging the kitchen or other additions that have added value to your home
Standard homeowners policies provide coverage for disasters such as damage due to fire, lightning, hail, explosions and theft. They do not cover floods, earthquakes or damage caused by lack of routine maintenance.
New Construction vs. Replacement Cost.
Regardless of a home's age, when rebuilding a home with severe damage, there are costs associated with reconstruction that are not part of the original construction costs. As a result, these reconstruction costs need to be considered when determining the amount of insurance needed for your home Cost incurred to reconstruct a home include:
- Economies of Scale
- Open Job Site
- Homeowner Involvement
- Overhead and Profit
- Building Codes
Economies of Scale
New Construction - Homebuilders often realize great savings in the mass purchasing of building materials. Contractors may be building many houses at the same time and can purchase materials in bulk at cheaper prices. Most of these materials will be commonly used throughout all the homes they are building.
Reconstruction - A Reconstruction contractor rebuilding a single home typically will not receive these savings. Materials for the job are unique and specific to the home and, therefore, are usually more expensive due to the lack of mass purchasing power.
Open Job Site
New construction - Most new home construction starts with an open area and no major obstacles that will hinder the construction process.
Reconstruction - Before any reconstruction can begin in an existing home, debris from the damages must be removed. In recent years, the cost to remove debris has increased, therefore increasing the cost to rebuild the home. When removing debris, contractors must work without damaging existing driveways, landscaping, utilities, septic systems and any undamaged portion of the house that may be remaining. The time and expense to work around these obstacles add to the costs of the overall project.
New Construction - In many instances, the construction of a new home requires little or no homeowner involvement.
Reconstruction - In most instances however, there is significant homeowner involvement during reconstruction. Naturally, the homeowner wants the house rebuilt just right and will interact regularly with the contractor. This interaction with on-site inspections, decisions and input into the reconstruction can add time and expense to the project.
Overhead and Profit
New Construction - A contractor building a new home will figure into the construction cost the allowances for overhead and profit. Overhead is fairly predictable because of the high repetition involved in new construction. Profit must be reasonable because the contractor still has to sell the house.
Reconstruction - The costs to reconstruct a home are less predictable because of the unknowns associated with reconstruction. Contractors may not receive complete information about the total scope of the work. To compensate for this unpredictability, restoration contractors will build into their cost a higher charge for overhead. Also, when a contractor is reconstructing a home there will usually be a higher profit margin built in. These increases are passed along to the insurance company.
Back to the top.
Q: What is Living Area?
A: The square footage of the living area in the home.
Back to the top.
Q: What is Actual Cash Value?
A: Actual Cash Value is the amount needed to repair or replace damage to your home after depreciation. For example, your insurance company would deduct for the age and condition of a 17-year old roof with a 20-year life expectancy.
New Construction - New-home contractors typically work in a pre-established time frame and are working with favorable time periods for scheduling work crews and subcontractors. Usually new construction is well planned and orchestrated.
Reconstruction - A reconstruction contractor must work in a more restrictive time frame in reaction to an unplanned event. There may be increased costs because work crews and subcontractors are working on shorter notice and tighter schedules. In order to get the families back into their homes as soon as possible, there is a certain urgency to complete the construction and therefore additional cost associated with these timelines.
New Construction - During new construction, homes are built to the building codes in force at the time.
Reconstruction - Over time it is not uncommon for building codes to change. Most changes to building codes deal with using better-quality building materials or better construction techniques. These changes in building codes often result in increased costs that now must be part of the reconstruction. Costs for the building fees and permits will also increase over the years.
New Construction - New construction uses the common labor trades, i.e., masons, framers, plumber, etc.
Reconstruction - Restoration contractors who are acting as renovation specialists can command higher wages because they are working in a damaged and more dangerous work site.
What kind of damage does a basic homeowners policy cover and what is not covered?
Most basic policies protect against damage from:
- Fire and lightning
- Windstorm and hail
- Riot and civil commotion
- Vandalism and malicious mischief
- Damage by glass or glazing material that is part of the building
- Volcanic eruption
You can also increase the coverage to include:
- Falling objects
- Weights of snow, ice and sleet
- Three kinds of water-related damage from home utilities or appliances
- Electrical surge damage
Coverage that is not afforded for in a standard homeowners policy can vary from company to company. However, unless you purchase additional coverage, damage caused by floods, earthquakes, nuclear accidents, wars, intentional damage and normal wear and tear is not covered. There are other exclusions that may also apply.
Replacement cost policies
Most policies cover replacement cost for damage to the structure. A replacement cost policy pays for the repair or replacement of damaged property with materials of similar kind and quality. There is no deduction for depreciation — the decrease in value due to age, wear and tear, and other factors. If you purchase a flood insurance policy, coverage for the structure is available on a replacement cost basis.
Guaranteed or extended replacement cost coverage.
After a major hurricane or a tornado, building materials and construction workers are often in great demand. This can push rebuilding costs above homeowners policy limits, leaving you without enough money to cover the bill. To protect against such a situation, you can buy a policy that pays more than the policy limits. An extended replacement cost policy will pay an extra 20 percent or more above the limits, depending on the insurance company. A guaranteed replacement cost policy will pay whatever it costs to rebuild your home as it was before the fire or other disaster.
Your personal possessions
Most homeowners insurance policies provide coverage for your personal possessions for approximately 50% to 70% of the amount of insurance you have on the structure or "dwelling" of your home. The limits of the policy typically appear on the Declarations Page under Section I, Coverages, A. Dwelling. To determine if this is enough coverage, you need to conduct a home inventory. This is a detailed list of everything you own and information related to the cost to replace these items if they were stolen or destroyed by a disaster such as a fire. If you think you need more coverage, contact your agent or insurance company representative and ask for higher limits for your personal possessions.
Building codes may have changed since your home was built
Building codes are updated periodically and may have changed significantly since your home was built. If your home is badly damaged, you may be required to rebuild your home to meet new building codes. Generally, homeowners insurance policies (even a guaranteed replacement cost policy) won't pay for the extra expense of rebuilding to code. Many insurance companies offer an Ordinance or Law endorsement that pays a specified amount toward these costs. (An endorsement is a form attached to an insurance policy that changes what the policy covers.)
If you own an older home, you may not be able to buy a replacement cost policy. Instead, you may have to buy a modified replacement cost policy. This means that instead of repairing or replacing features typical of older homes, like plaster walls and wooden floors, with similar materials, the policy will pay for repairs using the standard building materials and construction techniques in use today.
Insurance companies differ greatly in how they insure older homes. Some won't insure older homes for the replacement cost because of the expense of re-creating special features like wall and ceiling moldings and carvings. Other companies will insure older homes for the replacement cost as long as the dwelling is in good condition.
If you can't insure your home for the replacement cost or choose not to do so, make sure the limits of the policy are high enough to provide you with a house of acceptable size and quality.
Back to the top.
Q: What is Year Built?
A: The year the house was built.
Back to the top.
Q: What is Structure Quality?
There are four structure types: Basic, Builder, Custom and Designer as defined below:
Basic - (Fair) Floor plans that are very basic and repetitive with simple design. Builders keep cost low with simple floor plans and mediocre finish work usually just meeting county building codes.
Builder - (Average/Good) Small variety of floor plans used by builder. Offers minimal changes and options on finish work. Craftsmanship is average and generally meets or slightly exceeds county building codes.
Custom - (Very Good) Architectural floor plans purchaser can manipulate and modify making floor plan and style of home more distinctive. Above average craftsmanship, and finish work, generally custom homes exceed the standard county codes.
Designer - (Excellent) Architect designed and estate crafted around purchaser's taste and lifestyle. Architect supervises whole process. Top grade materials extravagant finish work and amenities. Effortlessly exceeding county building codes.
- It is an index number created by you to find your report after entering.
- You can search the database using the "Search Database" field by a specific word or you can use the Manual Entry option and input it yourself.
- No. You can adjust the pricing using the Labor, Material and Equipment columns and simply adjust the wording as needed.
- You can upload 10 photos not to exceed 1MB each.
- If you select the Calculate button you can preview the automatic pre-calculated area dimensions or if you prefer to enter your own dimensions, select the Manual dimensions button where you can enter, edit or modify the dimensions.
- Use the Label field to the right of the area name to be more specific.
- The database has been defaulted to apply Profit and Overhead and Tax to every line item in the database. You can deselect these fields in each line item as you prepare your report.
- On the Estimate Tab screen is where you will enter your percentages for Profit, Overhead and Tax. These calculations will be displayed on your final report.