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Conference nyoss1::market_investing

Title:Market Investing
Moderator:2155::michaud
Created:Thu Jan 23 1992
Last Modified:Thu Jun 05 1997
Last Successful Update:Fri Jun 06 1997
Number of topics:1060
Total number of notes:10477

365.0. "Home Insurance" by AKOCOA::GLANTZ () Wed Jan 27 1993 15:48

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365.1TUXEDO::YANKESWed Jan 27 1993 17:1027
    
    	Re: .0
    
    	Property insurance value = the cost of rebuilding the house if it
    burns down.  Mortgage appraisal value = the amount of money that
    someone will give you to buy your house.  The two figures do not have
    to be the same.  As examples:
                                                               
    	1)  Building house X on lot A costs roughly the same (presuming the
    lots are fundamentally the same) as building it on lot B in the same area,
    but the two houses could have dramatically different market values
    depending upon their locations.
    
    	2)  House A and house B could both have the same market value, but
    differ dramatically in the cost of building if A is a small house on a
    huge lot (where you are paying for the expanse of land) and B is a
    larger house but on a significantly smaller lot.
    
    So to answer your question about how I estimate the value of my home
    for property insurance coverage?  I don't mess around in this kind of
    area -- I'll let the insurance agency do the rebuilding estimates and
    tell me how much the insurance will cost.  I'll shop around for the
    best insurance rate, but I don't want to risk my house burning down and
    the insurance company coming back to say "but you told us to insure it
    for only this amount!"
    
    							-craig
365.2AKOCOA::GLANTZWed Jan 27 1993 19:3614
To provide more clarity in .0:

The mortgage appraiser actually did two appraisals, one by market value and 
the other by reconstruction cost.  It is the latter that I FAXed to my 
insurance company that lead to their own reappraisal and a subsequent 
reduction of my home insurance premium.

Comparing the market value to the reconstruction cost, in my town at least, 
the value of the lot exceeds the value of the structure on that lot.

Of course, any reconstruction appraisal yields an unrealistically high number.
That is because it assumes the entire structure will be rebuilt, including the 
foundation.  Since concrete is rather sturdy, only something like a gas 
explosion would reduce everything to rubble.