Replacement Cost MSB

Dec 3, 2015

  1. nyc2phi
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    I've always understood and explained why RC and appraisal value may be two totally separate numbers. Mostly the extreme is on old homes since their building material in today's dollars is much more expensive.

    But I have a guy buying an 05' home for 400K and the RC for just about everyone is between 650k-770k. It's a regular home that's about 4025 sqft with builders grade.

    Why would a home that was built not too long ago sell for so much then what it actually cost someone to build?
     
    nyc2phi, Dec 3, 2015
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  2. insurance1822
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    I've also thought the MSB was b.s. but don't forget this..

    If the home is damaged by fire (lets just say only 15-20% of the house..) well the corresponding smoke & water damage could be enough for a complete tear down. The structure would still be visibly standing (albeit charred around some windows...) so the cost to bring in a demolition contractor & knock down the entire structure & then haul it away becomes incredibly expensive.

    I've been through a few total losses & I've seen a debris removal cost of $130,000 on a home that size.

    That being said, yes I swear you hit a threshold & the MSB starts exponentially going up. Also in the reverse, you screw w/ an MSB calculator and make the house like 200 sq ft...it still bottoms out at like 110k & never goes lower. I believe it's flawed at those levels.
     
  3. dmetzger
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    $400,000 for 4,000 square feet equals $100 per square foot to rebuild. I don't know where you are located but that is very low. More like $200 - $250.
     
  4. insurance1822
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    I just built a brand new home, 3700 sq ft. If you back out the land, I'm at $105 per sq ft.
     
  5. dmetzger
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    I am going to move where you live.
     
  6. djs
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    djs Super Moderator Moderator

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    I see stuff like this in tract homes. It is MUCH cheaper to go through and build 100 homes at a time then it is to build 1.

    Reconstruction is always based on building 1 home.

    That said, this is the extreme where the house is overbuilt for the neighborhood it is in. The neighborhood clearly doesn't support this house (valuation wise).

    Also, reconstructions costs never equal sales price because you buy the dirt in the sale, but you don't actually pay to insure it. In some areas, this isn't relevant, but in big suburban areas, the cost of the land for the tiny lot the house is on can be higher then the cost of the house. People get freaked out because they don't think you are insuring the house for enough.

    Dan
     
    djs, Dec 4, 2015
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  7. Herkster
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    Well, in my neck of the woods, a house could be 2000 sq ft, appraise at 50k. But, you and I both know that wouldn't touch replacing the house if a total loss were to happen. This is because we live in an extremely low cost of living (note, not trashy) area, where farming is king. Not much for big business drawing in new buyers.

    Now, where WE run into trouble is with the mutual carriers that will insure a house, with RC, at appraised value. No matter how many times you tell someone that they would be SOL if they had a partial loss, let alone a total loss, they can't seem to grasp the concept of why we'd want to insure a house for 200k, that they can only sell for 50k.

    I've seen two instances happen in my 3 years at the agency with homes that were insured elsewhere without being insured at the correct replacement cost value. We've received phone calls from their friends to review their coverage to make sure it's all set up right if something were to happen. But man, they don't want to shell over the $300-$400 more a year to be insured correctly.

    It'll take time, but they'll be walking in our door when they get a roof replacement check that is less than 50% of what it's going to cost them to fix it.
     
  8. nyc2phi
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    Thanks for everyone's help.

    Looks like I might lose the sale to State Farm. Everyone of my carriers RC was at-least over 700k. State Farm is going to insure the home for 510K. He sent me their RC estimate and it matched mine fine.

    Anyone else come across a situation like this with them?
     
    nyc2phi, Dec 4, 2015
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  9. insurance1822
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    I believe state farm has a "similar" or "functional" replacement cost option that allows for lower values. if you look at dwelling coverage section 1 you'll see..that could be why you're unable to match it.
     
  10. hesse
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    will your carrier accept the SF valuation if you have a copy? a few of my carriers are willing to use other RCE if you can prove it.

    That being said all the state farm policies I see are underinsured and come close to matching my RCE when you add there extended coverage(125%)

    surprised they don't run into more issues on total losses
     
    hesse, Dec 8, 2015
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