RC is Marshall & Swift Always High

[URDRWHO]

Over the years I've found that the replacement cost that insurance companies use is often high. Many, many times I've seen the name of Marshall & Swift as the third part construction manual / calculations that are used for RC.

I normally work P&C construction so I have construction clients. I called one today to ask what the sq ft cost is for residential building in my area. He said $125 is a starting point, I was thinking $150.

Anyhow the reason this is brought up is that there is a HO client that wanted me to shop around. I found a well known company that would be about $700 a year less for AO and HO combined. So as usual to nail down the premium I sent in the cost estimator sheet. Currently the dwelling is $324,000 --- the RC from Marshall came back at $495,000.

I called an appraiser I know and he sent me to an appraisers website. On that site I found an online building estimator that I've used in the past and I found a new one.

The one estimator is --

New Home Construction Cost Calculator

The other is (one I've used in the past)

Building-Cost.net -- free residential building cost calculator
The numbers used in the above calculator are from the National Building Cost Manual, published by Craftsman Book Company.

When I input the information both calculators they come back with lower figures.

I think that M&S figures are padded for RC so that the insurance companies get a lot of wiggle room. Any thoughts???????????

Alternative To Marshall & Swift Res. Cost Handbook-Page 4 - General Appraisal Discussion - Appraisers Forum

 

[Sales71]

I used them for Allied and they seem lower than the RC on the Insurance company sites. Anyway you have to use what the company will accept. What you think and need to use is not your choice or mind. Unless your doing Course under construction and you have to pick the RC I use between$100-150 RC and ask the client if he is okay or wants more.

 

[joshb]

Over the years I've found that the replacement cost that insurance companies use is often high. Many, many times I've seen the name of Marshall & Swift as the third part construction manual / calculations that are used for RC. I normally work P&C construction so I have construction clients. I called one today to ask what the sq ft cost is for residential building in my area. He said $125 is a starting point, I was thinking $150. Anyhow the reason this is brought up is that there is a HO client that wanted me to shop around. I found a well known company that would be about $700 a year less for AO and HO combined. So as usual to nail down the premium I sent in the cost estimator sheet. Currently the dwelling is $324,000 --- the RC from Marshall came back at $495,000. I called an appraiser I know and he sent me to an appraisers website. On that site I found an online building estimator that I've used in the past and I found a new one. The one estimator is -- New Home Construction Cost Calculator The other is (one I've used in the past) Building-Cost.net -- free residential building cost calculator The numbers used in the above calculator are from the National Building Cost Manual, published by Craftsman Book Company. When I input the information both calculators they come back with lower figures. I think that M&S figures are padded for RC so that the insurance companies get a lot of wiggle room. Any thoughts??????????? Alternative To Marshall & Swift Res. Cost Handbook-Page 4 - General Appraisal Discussion - Appraisers Forum

One thing to think about, is the cost of reconstruction is always going to be higher than new construction. The msB system takes in to consideration demolition and debris removal.

 

[URDRWHO]

That is true about demo and debris except the rebuild doesn't need excavation for a new foundation, it doesn't need to build a new foundation or pour footers, etc. , it doesn't need to pay for utilities to be brought to the property (about $37,000 on new build) and more. So the demo debris cost is probably close to a wash.

Coinsurance/Insurance to Value Revisited: An Essential Concept in Property Insurance

Replacement Cost Estimating Tools - Adjusting Today

<<Free Sites
Several of the free sites examined ask for very little information and seem more geared toward providing a market value or selling price for the home than a replacement value. One free site, however, Building-Cost.net, includes a fairly detailed questionnaire that takes approximately 10 minutes to complete and gives consumers a bottom line cost to rebuild the home, including categories for material, labor and equipment. As a caution, some of the terminology used in the questionnaire may appear unfamiliar to many consumers, although the site does provide prompts that explain different styles and types of siding, roofing, kitchen and bathroom levels of quality, etc.>>

Avoiding or Minimizing the Problem of Underinsurance - Adjusting Today

<<Determining accurate replacement value can be troublesome because there are
a variety of tools or methods that can be used and they can have different results. For that reason, it can be said that determining replacement value is not an exact science. >>

Because of the previous paragraph, I feel that M&S along with the insurance companies will err on the high side and sometimes very high.

One thing to think about, is the cost of reconstruction is always going to be higher than new construction. The msB system takes in to consideration demolition and debris removal.

 

[Milkman1265]

also debris cost is included in the co insurance calculation right?

i know msb uses debris in addition. it says reconstruction cost 135 per sqft but the 100% replacement would be 200per sqft to include thr debris removal.

 

[TKINSFIN]

I agree the insurance carrier is trying to protect their butts. In FL what I do sometimes is use a different insurance carriers RCE and write the policy with someone else if the other insurance carrier will except their RCE.

Most of the time we are at the mercy of the insurance carrier but sometimes it works in our favor. I spoke with a building contractor and they told me that they could rebuilt any NORMAL house for about $80 a foot. Most of the insurance carriers RCE is based on $100 to $125 a sq foot in FL. Again, a normal house with no granite counter tops or special hard wood floors. You have to use your judgement with your client if it has special features.

Oh course you want to make sure the price is the right amount if the house does burn to the ground. You can't trust the client because they will throw you under the bus as soon as something goes wrong.

 

[pugagent]

It is hard to do a perfect RCE...We don't normally go in the house to see the granite counter tops, we don't have 30 minutes to complete the RCE with the customer, etc. And as a personal experience with having a few total loss fires in our agency, you will be glad it is "high" when the claims department starts their estimate...If there is a co-insuranc issue it will be on us...

 

[insurance1822]

That is true about demo and debris except the rebuild doesn't need excavation for a new foundation, it doesn't need to build a new foundation or pour footers, etc. , it doesn't need to pay for utilities to be brought to the property (about $37,000 on new build) and more. So the demo debris cost is probably close to a wash.

Coinsurance/Insurance to Value Revisited: An Essential Concept in Property Insurance

Replacement Cost Estimating Tools - Adjusting Today

<<Free Sites
Several of the free sites examined ask for very little information and seem more geared toward providing a market value or selling price for the home than a replacement value. One free site, however, Building-Cost.net, includes a fairly detailed questionnaire that takes approximately 10 minutes to complete and gives consumers a bottom line cost to rebuild the home, including categories for material, labor and equipment. As a caution, some of the terminology used in the questionnaire may appear unfamiliar to many consumers, although the site does provide prompts that explain different styles and types of siding, roofing, kitchen and bathroom levels of quality, etc.>>

Avoiding or Minimizing the Problem of Underinsurance - Adjusting Today

<<Determining accurate replacement value can be troublesome because there are
a variety of tools or methods that can be used and they can have different results. For that reason, it can be said that determining replacement value is not an exact science. >>

Because of the previous paragraph, I feel that M&S along with the insurance companies will err on the high side and sometimes very high.

WOW...why are you even towing the line of under-insuring a property? What MSB says GOES & if you question it for one second you're guilty of lying/intentionally under-insuring & being deceitful. You should be ashamed of yourself.

 

[djs]

My experience is most contractors significantly understate the cost to rebuild a house, thinking only of the part they get paid, not all of the costs.

For instance, permits can be a HUGE fee.
Architectural drawings for the rebuild (do you have the originals? Do they meet code?)
Code requirement changes to foundations may exist, especially on older properties.
That water line to the house needs to get replaced with a 1" supply line to deal with the new requirement of fire sprinklers to be installed in the rebuild.....

Lots of little things that can happen, especially on a total rebuild, that a contractor quoting $125 a sq foot is only thinking of the 2x4's and stuff he knows. This is probably a good estimate on a single room fire (except kitchen) but may not be as valid for an entire structure rebuild where the rules change in most municipalities.

This is definitely one area where agents don't get enough experience and that is probably a good thing (who wants a lot of total house losses?).

Dan

 

[URDRWHO]

I am old school (yes a geezer to some) but I go out and take pictures of the house.

Let's say that MSB is high (which is a thread I once started that MSB is high) is it better to be too high or too low? If you are too high, it may be $100 more a year but in a total loss that $100 could save you many, many thousands.

This is what was posted on another forum:

"I have a friend that is a large loss adjuster for a top 3 US carrier. He is one of the adjusters that goes out in the event of a total loss. I have asked him this same question. His answer: They scrutinize the coverage A dwelling coverage amount at claim time, to make sure it is insured at replacement cost. If it is not at RC, they do not extend the ERC, or the extended replacement cost endorsement. So the agents that are underinsuring homes, betting that the ERC will kick in no matter what, had better have a very good E & O policy in place. His words, not mine.

IMHO: Any agent that is greedy enough to make a $150 commission, and value that over properly insuring a house and risking their livelihood, is well deserving of what they get."

An appraiser friend was telling me that he was told at a seminar to remember, a house doesn't have to burn to the ground to be considered a catastrophic total. I can see that. If a good percentage of the roof is gone, a good percentage of the one side of the first or second floor, I can see it being demolished and rebuilt.

Thanks for the link.

Avoiding or Minimizing the Problem of Underinsurance - Adjusting Today

My experience is most contractors significantly understate the cost to rebuild a house, thinking only of the part they get paid, not all of the costs.

For instance, permits can be a HUGE fee.
Architectural drawings for the rebuild (do you have the originals? Do they meet code?)
Code requirement changes to foundations may exist, especially on older properties.
That water line to the house needs to get replaced with a 1" supply line to deal with the new requirement of fire sprinklers to be installed in the rebuild.....

Lots of little things that can happen, especially on a total rebuild, that a contractor quoting $125 a sq foot is only thinking of the 2x4's and stuff he knows. This is probably a good estimate on a single room fire (except kitchen) but may not be as valid for an entire structure rebuild where the rules change in most municipalities.

This is definitely one area where agents don't get enough experience and that is probably a good thing (who wants a lot of total house losses?).

Dan