If you're a homeowner, your money can be at risk in more ways than you may think. In today's declining housing market, home values have gone south, even if you can find a qualified buyer. With severe spring weather followed by the tropical season, there's much to learn about potential damage to your home.
Consider these common scenarios:
- High winds cause a large tree to crash into your home.
- A kitchen fire damages several rooms.
- A lightning strike destroys your home.
- A tornado reduces your home to splinters.
How much will it cost to bring your home back to normal?
The market value of your home before the incident was $150,000. Now, it's $100,000 due to the economy and its effect on housing. How much will the repairs cost?
According to a new study by Xactware, a Utah company that keeps up with housing and repair costs, to rebuild a damaged home went up 3.95 percent nationwide last year.
The report found of the top five states by building cost increases, the leader was Alaska at more than 8 percent. Nevada was second at more than 6 percent followed by Georgia, Texas and Hawaii, all above 5 percent.
The exact rebuilding cost is usually expressed in dollars-per-square-foot.
For instance, to build a 2,000-square-foot home at $100 per square foot equals $200,000.
To calculate the cost to rebuild your house, first consider that the issue has nothing to do with what it's worth today because this is about reconstruction costs, not market value. You'll need to know the following:
- The per-square-foot cost in your neighborhood to build and to rebuild. Keep in mind expensive extras such as high-end appliances; cabinets and other materials can put the cost per square foot upwards of $500 to $600 for very expensive homes.
- How much damage has your home sustained? Before the rebuilding process begins, the damage must be removed and disposed of and the home must be prepared for rebuilding.
A 12-by-15-foot room equals 180 square feet, and the per-square-foot cost can increase by as much as 50 percent for readying a space for reconstruction. So the $100 per-square-foot cost goes up to about $150.
As an example, if 500 square feet of your home is destroyed, the replacement cost could be $75,000.
- What is covered by your homeowners insurance policy? If a tree falls into your home and rain pours in, that water damage would be covered. However, if floodwaters enter your home, without flood insurance, there is no coverage for damage resulting from raising water.
Also to obtain the full amount for personal belongings, a detailed home inventory is important.
- Where will you live while your home is under repair? Your insurer or agent will explain your additional living expenses portion of your policy. This will cover such items as payment for temporary housing, food costs before you obtain living quarters with a kitchen, and other items. The details of your policy will address how long additional living expenses can be covered and how you get your reimbursement. Receipts will be important to document your expenses.
You will probably find that the amount of insurance you obtain will be a function of the appraisal value when you purchased the home, but keep in mind the insurer looks at the home itself, not the value of the land.
Typically, your homeowners' policy has built-in escalators to keep up with the cost of construction and building materials over the years, but you should check periodically.
That's why market value at the moment is not considered. It's all about rebuilding costs and demolition.
These are fundamental questions that are better to know ahead of time instead of after damage occurs.
The time you spend with your agent or company will help you and your family in many ways should a disaster occur.
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