Home insurance dwelling coverage ratio (Scottsdale: sales, real estate, homeowners insurance)

[yche]

Buying a home in Scottsdale but have no idea the percentage range for dwelling/market ratio? Is 400k for a 700k new built house enough, suppose we have all the high quality upgrade. Any suggestions are welcomed. We never had a house in AZ.

[LBTRS]

I don't really understand the question...if the house burns down it is going to cost you the same to rebuild it as you're paying to have it built now minus the cost of the lot of course. I don't know how you would replace a high end $700K home on only $400k unless the lot is worth $300k.

Maybe I'm not understanding the question.

[yche]

That' what I don't understand too. I got quote that dwelling coverage is only under $300k. Maybe it is because of Scottsdale's land is more expensive?

[fennec2009]

Find an appraiser who is experienced with valuing properties using the cost approach. They will be able to separate the land out of the equation, which is harder to do with a market-based approach. There is no ratio that is appropriate for all properties, and just because a builder was able to build the home for a certain cost doesn't mean that's the replacement cost.

Isn't this something that the insurance company would handle though? My mortgage company all but took care of the homeowners insurance. They dictated the level of coverage needed. Unless you are purchasing outright I'm not sure why this is your responsibility. Even then, wouldn't the insurance company determine the replacement value and give you coverage options?

[gregm]

Originally Posted by LBTRS

I don't really understand the question...if the house burns down it is going to cost you the same to rebuild it as you're paying to have it built now minus the cost of the lot of course. I don't know how you would replace a high end $700K home on only $400k unless the lot is worth $300k.

Maybe I'm not understanding the question.

Insurance Co's are tough. I was a GC who did a lot of Insurance Damage Repair. Unless you are in a real high end home 1m+ you don't get any special treatment. The 1m+ folks are paying big time so they get special treatment.

An answer to your question you will be lucky to get 80% from the insurance co. They most always discount for deprecation. I know it's not fair.

Originally Posted by yche

That' what I don't understand too. I got quote that dwelling coverage is only under $300k. Maybe it is because of Scottsdale's land is more expensive?

The house isn't worth 700k any longer. It's only worth 300k and the lot I can't say. For a rough guess you can start at $100.00 per sq. ft. and go up from there depending on accessory's.. 3,000 sg. ft. x $100.00 = $300k.

Most Insurance Co's use "Cost of Replacement" not what you paid for it. My home went down in value in 08, but my insurance co. said that the cost for replacement has gone up.

So I am now self insured, because I own it. I just save the money in a account at the Credit Union. 3,300x5+ $16,500 put away. Short of total destruction I'm good, as I could do almost any repair here for 16k myself.

For me the way I view it it is just to protect the banks investment. If my house burns to the ground I'll just sweep it away and put a modular or fancy double wide on the slab. This is the main reason I would never live in a location that wasn't zoned AG.

[LBTRS]

When I switched from the company that had my original homeowners insurance to a new insurer I lowered the amount because the initial amount insured was for the entire purchase price of the new build home we bought. I removed the value of the lot and purchased insurance for the original amount minus the lot. About four month later I got a letter from my mortgage company telling me I didn't have it insured high enough and they were going to purchase insurance if I didn't fix it right away. They demanded I insure it for the amount I originally paid for the house.

[Zambendorfjr]

There is no magic ratio of insurable value to purchase price.

The cost approach section of a real estate appraisal is not for insurance, neither is "purchase price" less "land value" (even if you built it yesterday).

The M&S MVS book or the equivalent software (SwiftEstimator) are not licensed for insurance.
Neither are any of the free on-line building cost estimators.
These are all new construction basis, insurance replacement cost is reconstruction.
It costs more to rebuild for a variety of reasons. Using the new construction estimate will lead to inadequate limits for a total loss and coinsurance penalty for partial loss.

Marshall & Swift/Boeckh sells the insurance model (RCT), different division of same company.
Consumer can get access at accucoverage[dot]com for about $8, or go to their local agent.
Other insurance models include 360-Value and e2Value.
For any model you should check the inputs and system generated assumptions carefully.
You may find some data points have been pulled from inaccurate/incomplete/outdated public records.

An insurance agent that uses the purchase price as the basis for insurance should be fired.
The agent that "games" the valuation model to get an artificially lower number should also be fired.

Lenders can demand insurance be kept to at least cover the outstanding loan balance, but not more than the full replacement cost. Depending on market conditions at the subject property, the full replacement cost (100% reconstruction) may be higher or lower than the current market value.
If the lender is demanding insurance limits equal to purchase price, you're probably dealing with an inadequately trained clerk, you may need to have insurance agent prepare the 100% replacement cost estimate. A copy of this should back them down.

[Jkgourmet]

Please ignore the 'advice' from Gregm above. It's rubbish in your situation. Others gave you good advice, but your question/situation IS difficult to fully understand.

Here's my 2 cents. Call several GOOD insurance companies. Get quotes from them. You'll want quotes that include your auto policies, as you will receive cheaper rates if you bundle all this together. Get home owner's insurance for the replaceable value of your home. That means that if you have a total loss (unlikely) they will rebuild it to it's current level. No depreciation would be involved.

After you have 3 quotes, compare the REPLACEMENT values the insurance companies put on your home. Ask THEM why it's less than the sales price. They will tell you the difference is the value of the land. That's accurate BUT it's also because the builder is charging you a lot more than the true replacement value of the house and especially the upgrades. The builder bangs you big time. If the insurance company has to rebuild parts of the house (or the whole house), they will not be paying builder prices for the same quality of construction and upgrades.

I hope that helps. May I also suggest that you consider getting an umbrella liability policy of at least $1million? The liability would extend to both your home and your car. For anyone with assets (and if you're buying a $7K home, you have assets), an umbrella is a must have, IMHO.

[elcajones]

You want to insure for at least 80% of A.C.V.. 80% is the standard co-insurance clause. Adjust as needed when you learn your homes value each year.

[hikernut]

I don't know the answer to the question, honestly. It's seems there are a lot of things to consider for a full replace scenario (most likely a fire).

There may be some demolition cost, assuming the house didn't literally burn to the ground. This is an adder to original build. Also, building a house in isolation is likely more expensive than building one house in a new subdivision.

On the other hand, there are some things that likely would not need to be rebuilt or purchased again... perimeter wall, driveway, water and sewer taps. Service lines/pipes for water/sewer/electric. The slab may or may not be salvagable. Etc.

hikernut