Real Estate Value vs. Rebuilding Value
Why would you insure your home for more than you paid for it? Many people mistakenly believe the amount they paid for their home is the same as its replacement cost. Depending on where you live, the cost to rebuild a total loss home can be significantly more than its market value. Some of the factors that drive up rebuilding/reconstruction costs include:
URGENCY: Property losses are not planned like a new construction project. When they do occur, there is a need to rebuild as soon as possible. This means the cost of labour, materials, and other services required are often significantly higher.
DEMOLITION AND DEBRIS REMOVAL: Major losses require the removal of partially damaged property and debris. Costs increase if there are environmental issues such as soil contamination.
CURRENT BUILDING CODES: New and more demanding building codes may need to be met when rebuilding or restoring a damaged home.
WORKSITE ACCESS AND COLLATERAL DAMAGE: At reconstruction sites there is typically less room because of debris, landscaping, fences and other buildings in the vicinity. This causes more work and material storage to be done away from the site, thus extending the project time and costs. Sometimes, physical access requirements result in collateral damage to existing property on and beside the insured’s property.
See next month’s tip on establishing a rebuilding value for your home.