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  • Jun29Wed

    Market Value vs. Rebuilding Cost

    June 29, 2016
    Recently the real estate market has been reaching historical highs.     Houses selling within hours, for much more than their asking price with many bidding wars.    But how does this relate to insurance?  Well imagine a buyers surprise when they pay almost a million dollars for their home only to be told by their insurance advisor that they only need to insure the house for half that amount.  Why?   It has to do with the difference between market value and rebuilding cost.
    Market Value is the price you paid for your house, including the land. Market value is influenced by several factors such as location, condition of the home, size of the lot, condition of neighboring properties, quality of the schools in the area, local market conditions, etc.   Rebuilding cost on the other hand is the cost to actually rebuild your home and is the amount that you need to insure to.  With a hot real estate market the cost to buy the house can often exceed the cost to actually rebuild it. 
    A couple of other important factors to  keep in mind with rebuilding cost is that rebuilding a single home is usually more expensive than building an equivalent new one or one that is part of a subdivision.  Demolition and removal of the old home must occur before rebuilding begins. Usually the rebuilding sites are less accessible than vacant lots or new subdivisions causing an increase in cost. With new subdivisions contractors are able to obtain volume discounts on material where with rebuilds they are not.    Labour is harder to find and more expensive with reconstruction than with new. Newer building code changes may prohibit rebuilding on the current foundation or require other changes driving up cost. Replacement costs include the materials, labor costs, site supervision, architect’s services, contractor’s profits and overhead, and possibly foundation cost. 
    For more information please contact one of the professional advisors at L.D. Dermody Insurance Brokers.  They can help guide you to determine the proper amount of insurance coverage that you require and provide you with a quote to ensure that you get the right coverage at the right premium cost. 
L.D. Dermody Insurance Brokers (1982) Inc.