House Insurance / cost per square foot

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vas
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Joined: Thu Mar 06, 2014 12:51 pm

House Insurance / cost per square foot

Post by vas »

Given the increase in construction costs and the significant increase in house prices in my area I contacted my insurance agent to reassess coverage. They indicated that the replacement cost for a house with "nicer finishes" is $350 to $500 per square foot. This is a big change from my original coverage and is going to double my current premium. I've contacted the contractor that built the house 12 years ago to see if I can get a napkin estimate. He is familiar with the house and current construction prices so I'm hoping he can provide some guidance.

I'm sure actual construction costs vary by location, but I'm curious what others have experienced. If you've built a customer home recently or obtained a construction estimate for insurance purposes, what was the price per square foot?
"Decide what happiness means to you. Then decide to be happy. It doesn't just happen." - Christina Tosi
secondcor521
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Re: House Insurance / cost per square foot

Post by secondcor521 »

I'm sure you're not happy with the new premium. Makes sense.

My house here in Boise, Idaho, which I would characterize as medium quality finishes, has a rebuild cost of $157 a square foot per my insurance company, USAA. I think that's low, but I figure if I have described it accurately (I have) and I insure it for what they say is the rebuild value (I have), then I'm OK coverage-wise.

I did have my home insurance about 15% to 20% below value for a while to save on premiums. I learned at some point that if USAA thinks I've underinsured by too much, then they can essentially impose a sort of co-insurance - if my house burned down and it were 20% underinsured, they might only cover 80% of the rebuild cost. I'm not sure how much underinsurance is OK and how much is not. I'm fairly sure I have a replacement cost policy.

If you're interested in saving on premiums and can carry the risk, you can look at increasing your deductible. I had a higher deductible for a while for this reason. It could be smart, because most of the time it's my understanding that you don't want to file a "small" homeowner's claim anyway, because they'll increase your rates if you make a claim.
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snackdog
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Re: House Insurance / cost per square foot

Post by snackdog »

$300-500/sq ft sounds about average. Just look up the price of recent new home sales in your area. Subtract land and maybe foundation value.
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Larix
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Re: House Insurance / cost per square foot

Post by Larix »

I recently tried to figure this out, but didn't go so far as to talk to home builders. My insurance is also through USAA, and their calculations (based on questions about my home's features) yielded a rebuild cost of $325/square foot. However, they seem to ignore my large, fully-finished basement in that calculation, and if that square footage were included, that coverage would only provide $215/sqft. Based on that and reasoning that my rural, mountainous location near some pretty HCOL areas/ high-priced real estate markets can't have rebuild costs far below average, I bumped my coverage up to ~$250/sqft including the basement. In the end, this was a wild guess for me.
MileKing
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Re: House Insurance / cost per square foot

Post by MileKing »

secondcor521 wrote: Wed Jun 22, 2022 2:12 pm My house here in Boise, Idaho, which I would characterize as medium quality finishes, has a rebuild cost of $157 a square foot per my insurance company, USAA. I think that's low, but I figure if I have described it accurately (I have) and I insure it for what they say is the rebuild value (I have), then I'm OK coverage-wise.

I did have my home insurance about 15% to 20% below value for a while to save on premiums. I learned at some point that if USAA thinks I've underinsured by too much, then they can essentially impose a sort of co-insurance - if my house burned down and it were 20% underinsured, they might only cover 80% of the rebuild cost. I'm not sure how much underinsurance is OK and how much is not. I'm fairly sure I have a replacement cost policy.
You may want to check your policy. "Replacement cost" typically means the insurer will pay for your home to be rebuilt with materials at current costs up to your coverage limit. "Guaranteed replacement cost" guarantees rebuild regardless of cost. Guaranteed replacement cost policies are much more expensive and not every insurance company offers that type of coverage. Many policies have packages that are included that offer 20%, 50%, or more on top of your dwelling coverage in the event of a total loss. You can tack that on to the dwelling coverage, but again, you are on the hook if it costs more to rebuild than your coverage limit.

Building costs have increased significantly and most homes are underinsured. For anyone concerned about rebuilding their home with no out of pocket cost in the event of a total loss, be wary of the rebuild estimates provided by your insurance company as they can be wildly inaccurate. I built a new custom home that was completed in August 2020. Midway through the build I went to work for my general contractor. I pretty much know to the penny what it cost to build my home. My HO policy was up for renewal in September 2021 and I re-shopped my homeowners insurance with at least six providers, all large well known insurance companies. All of the companies estimated rebuild costs that were substantially lower than my original build cost even after I removed several items from my cost that would not be applicable if I needed to rebuild such as excavation, well, etc. In my area, at the time, new home construction costs were running $375-$400/sf. (That number is now $450-500/sf for a home with nicer finishes.) A couple of the insurance companies quoted a rebuild cost of $200-$225/sf. No one in my area has built for that since at least 2018. If you want an accurate number for what your replacement cost is likely to be, I recommend reaching out to several local contractors to inquire what their most recent builds cost and/or what they are estimating now.

Also, another poster mentioned excluding foundation cost from rebuild cost. I would not recommend that. Concrete and the rebar in it can get hot enough from a house fire to weaken and/or crack the footings, slabs, and rebar. In a total loss from a fire, it is more than likely that whatever engineer you hire to draw/approve your plans or assess your foundation is not going to take the risk that the foundation is fine. They will require the foundation be demolished and redone.
scifilover
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Re: House Insurance / cost per square foot

Post by scifilover »

There was an earlier thread a month or so ago on this topic which I mention only because it prompted me to revisit the amount of insurance on my home. I too am with USAA and looked at my policy. Based on the USAA replacement cost estimator, and USAA's annual coverage increases, the policy was set at about $200/sf. This also seemed low to me. So for a little research I called a local independent agent that I am friends with. He reported that the cost of new construction was around $240/sf. However, the kicker is that that contractor has a full-time crew. It seems that with the current labor shortage a contractor hired to repair a house might have a couple of carpenters, but need to hire subs for other trades. To get them the insurance co has to pay up to 20% above average contractor wages. And, the costs of rebuilding are higher than building new.

Further, there are issues with getting lumber and other building materials sometimes which can also increase costs. So, I took a look at USAA's guarantee of replacement clause....This provides coverage above your structure limit in case you are under-insured. With USAA in WA, this is set at 25% of Coverage A (main structure). I then went on line at USAA.com and increased my Cov A by 20%. This would raise my coverage to $240/sf and $300/sf with the guarantee. So, it would be wise to look at your policy language to see your guaranteed % as a part of thinking about this issue. If you don't feel confident about reading the policy call your agent or the company directly.
mkc
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Re: House Insurance / cost per square foot

Post by mkc »

MileKing wrote: Wed Jun 22, 2022 6:43 pm
secondcor521 wrote: Wed Jun 22, 2022 2:12 pm My house here in Boise, Idaho, which I would characterize as medium quality finishes, has a rebuild cost of $157 a square foot per my insurance company, USAA. I think that's low, but I figure if I have described it accurately (I have) and I insure it for what they say is the rebuild value (I have), then I'm OK coverage-wise.

I did have my home insurance about 15% to 20% below value for a while to save on premiums. I learned at some point that if USAA thinks I've underinsured by too much, then they can essentially impose a sort of co-insurance - if my house burned down and it were 20% underinsured, they might only cover 80% of the rebuild cost. I'm not sure how much underinsurance is OK and how much is not. I'm fairly sure I have a replacement cost policy.
You may want to check your policy. "Replacement cost" typically means the insurer will pay for your home to be rebuilt with materials at current costs up to your coverage limit. "Guaranteed replacement cost" guarantees rebuild regardless of cost. Guaranteed replacement cost policies are much more expensive and not every insurance company offers that type of coverage. Many policies have packages that are included that offer 20%, 50%, or more on top of your dwelling coverage in the event of a total loss. You can tack that on to the dwelling coverage, but again, you are on the hook if it costs more to rebuild than your coverage limit.
Policygenius has a good explanation of "guaranteed replacement cost" https://www.policygenius.com/homeowners ... ment-cost/ as well as the second type mentioned, which is called "extended replacement cost" https://www.policygenius.com/homeowners ... ment-cost/

Also consider that the guarantee/extension usually only applies to the primary dwelling. If you have additional structures (like a detached garage), there will be set policy limits on those.
Topic Author
vas
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Re: House Insurance / cost per square foot

Post by vas »

MileKing wrote: Wed Jun 22, 2022 6:43 pm If you want an accurate number for what your replacement cost is likely to be, I recommend reaching out to several local contractors to inquire what their most recent builds cost and/or what they are estimating now.
This seems like the best approach, although there is likely a big difference between spec house and nicer custom home. I'm checking with a couple of builders but they are still so busy that its challenging to get any mindshare.

I may just go with something in the higher range ($450 - $500) even though that more than doubles the annual premium.
"Decide what happiness means to you. Then decide to be happy. It doesn't just happen." - Christina Tosi
lws
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Re: House Insurance / cost per square foot

Post by lws »

Got this from the insurer.
Came with the policy renewal documents.
Total Living Area is 3424 Square Feet.
SoCal house.

Homeowner Reconstruction Cost Notification
Reconstruction Cost Estimate Details

Labor, Materials, and Supplies: $397,575
Demolition and Debris Removal: $21,161
Overhead and Profit: $87,446
Permits and Architects Plans including General Conditions: $39,657
TOTAL ESTIMATED RECONSTRUCTION COST INCLUDING DEBRIS REMOVAL: $545,839
secondcor521
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Re: House Insurance / cost per square foot

Post by secondcor521 »

I'd like to ask a question related to this topic. Mods feel free to move to it's own thread.

I'm honestly 0% worried about a total loss. None of us smoke, the one kid of mine that burns candles is hyper responsible, everything is in good condition and well maintained, and most of all, the fire department is 1.5 miles away and there's a hydrant next door. Feel free to disagree, but that's my premise.

Let's say for example - not real numbers - my house is worth $500K with a rebuild cost of $300K, and I insure it for the rebuild cost (as my insurer USAA recommends). Let's say actual rebuild cost for the entire thing is actually closer to $400K for all the reasons mentioned above.

Now let's say something happens where I want to make a claim - say, a small kitchen fire. The kitchen repair/replacement/restoration is, say, $50K actual.

Does USAA pay me $50K (minus my deductible I guess) because that's less than $300K that I have it insured for, or some pro-rated amount based on $300K/$400K or $300K/$500K. I'd always assumed the former simply because the prorating is based on approximating numbers for the denominator, but I really don't know.
iamlucky13
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Re: House Insurance / cost per square foot

Post by iamlucky13 »

I don't have a bottom up estimate for my area (greater Seattle area), but I do have rough top down estimates to keep an idea of my own potential replacement cost, based on a couple homes recently built in my neighborhood. From real estate records, I know the purchase price of the land, house size, and selling price.

All of these also had expenses to tear down an existing home and remove the foundation and most or all of them required new onsite septic systems, in addition to selling expenses and developer profit.
  • Built in 2015: 2500 SF, 3 bed, 3 bath, 3-car garage. Average features and build quality - $191/SF
  • Built in 2016: 4700 SF, 4 bed, 6 bath, 3-car extra deep garage, plus detached shop. Above average features and build quality - $230/SF
  • Built in 2019: 2200 SF, 3 bed, 2 bath, 3-car garage. Average features and build quality - $215/SF
  • Built in 2019: 3700 SF, 3 bed, 3 bath, 3-car garage. Above average features and build quality - $284/SF
    - Prior house burned down. Property sold and sat for 4 years before new house built and sold in a very rapidly rising market. If the prior sale had occurred in the same year as the final sale, I think the normalized net price would have been more like $250/SF
  • Built in 2020: 3100 SF, 4 bed, 3 bath, 3-car garage. Above average features and build quality. $300/SF
    - Another neighbor knows the builder of this one, and has suggested the profit was huge, due to taking a risk on a particularly ugly property in a rapidly rising market. I also think the buyers overpaid, but I've met them, and knowing what the kind of work they do pays, they can afford not to care.
  • Built in 2021: 3700 SF, 4 bed, 5 bath, 2+ car garage (2 doors, but one deep bay so space for 3). High end features and build quality - $360/SF
    - After prior sale, old house was rented for 3 years before being torn down, new house built and sold in a very rapidly rising market. If the prior property sale had occurred in the same year as the final sale, I think the normalized net price would have been more like $300/SF
Last edited by iamlucky13 on Fri Jun 24, 2022 11:08 am, edited 1 time in total.
Topic Author
vas
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Re: House Insurance / cost per square foot

Post by vas »

lws wrote: Thu Jun 23, 2022 2:06 pm Got this from the insurer.
Came with the policy renewal documents.
Total Living Area is 3424 Square Feet.
SoCal house.

Homeowner Reconstruction Cost Notification
Reconstruction Cost Estimate Details

Labor, Materials, and Supplies: $397,575
Demolition and Debris Removal: $21,161
Overhead and Profit: $87,446
Permits and Architects Plans including General Conditions: $39,657
TOTAL ESTIMATED RECONSTRUCTION COST INCLUDING DEBRIS REMOVAL: $545,839
So $160 / sq ft? That's amazingly low. It would be interesting to get a contractor's perspective.
"Decide what happiness means to you. Then decide to be happy. It doesn't just happen." - Christina Tosi
Topic Author
vas
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Re: House Insurance / cost per square foot

Post by vas »

iamlucky13 wrote: Thu Jun 23, 2022 3:41 pm ...rough top down estimates to keep an idea of my own potential replacement cost, based on a couple homes recently built in my neighborhood. From real estate records, I know the purchase price of the land, house size, and selling price.
Great info, thanks for taking the time to pull that together.
"Decide what happiness means to you. Then decide to be happy. It doesn't just happen." - Christina Tosi
Topic Author
vas
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Re: House Insurance / cost per square foot

Post by vas »

secondcor521 wrote: Thu Jun 23, 2022 3:34 pm I'm honestly 0% worried about a total loss. None of us smoke, the one kid of mine that burns candles is hyper responsible, everything is in good condition and well maintained, and most of all, the fire department is 1.5 miles away and there's a hydrant next door. Feel free to disagree, but that's my premise.
I wouldn't completely discount the total loss scenario. I know a family in the San Diego region that lost their house in the fires a few years back. Their house didn't even burn. The place next door burned to the ground and the heat was enough to damage the wiring throughout their house. That and the smoke damage resulted in a complete rebuild, replacement of contents, etc. Not saying its likely or that you should worry about it but it seems sensible to have insurance coverage for a complete replacement.
secondcor521 wrote: Thu Jun 23, 2022 3:34 pm Now let's say something happens where I want to make a claim - say, a small kitchen fire. The kitchen repair/replacement/restoration is, say, $50K actual. Does USAA pay me $50K (minus my deductible I guess) because that's less than $300K that I have it insured for, or some pro-rated amount based on $300K/$400K or $300K/$500K.
The smaller claim is evaluated independently. There is no prorating based on the coverage limits. The maximum coverage is just a cap to limit (define) the insurance company's liability.
"Decide what happiness means to you. Then decide to be happy. It doesn't just happen." - Christina Tosi
talzara
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Re: House Insurance / cost per square foot

Post by talzara »

secondcor521 wrote: Thu Jun 23, 2022 3:34 pm Let's say for example - not real numbers - my house is worth $500K with a rebuild cost of $300K, and I insure it for the rebuild cost (as my insurer USAA recommends). Let's say actual rebuild cost for the entire thing is actually closer to $400K for all the reasons mentioned above.

Now let's say something happens where I want to make a claim - say, a small kitchen fire. The kitchen repair/replacement/restoration is, say, $50K actual.

Does USAA pay me $50K (minus my deductible I guess) because that's less than $300K that I have it insured for, or some pro-rated amount based on $300K/$400K or $300K/$500K. I'd always assumed the former simply because the prorating is based on approximating numbers for the denominator, but I really don't know.
The insured-to-value clause is in the policy to deter insurance fraud. It's used in cases of substantial misrepresentation.

If you told the insurance company that you own a tract house with average construction quality, but the adjuster notices that you actually own a custom house with high-end materials, then the insurance company could require coinsurance on a partial loss.

If you told them the truth, but the insurance company's replacement cost calculator underestimated the replacement cost, then that's an error by the company. It will not require coinsurance on a partial loss.
vas wrote: Fri Jun 24, 2022 10:51 am The smaller claim is evaluated independently. There is no prorating based on the coverage limits. The maximum coverage is just a cap to limit (define) the insurance company's liability.
The insured-to-value clause requires the house to be insured to at least 80% of replacement cost. Coinsurance is required if the coverage limit is below 80% of replacement cost.

The example was a $300k limit on a house that actually has a replacement cost of $400-500k, which is 60-75% of replacement cost. The insured-to-value clause gives the insurance company the right to require coinsurance, but it will not actually happen as long as the policyholder has told the truth about the house.
marksj
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Re: House Insurance / cost per square foot

Post by marksj »

Have not posted in a while, but wanted to chime in with my experience.

Based on NorCA (wild fire prone). Cost estimate for rebuild 500-600 sq feet easy.

Also somethings to consider:
1. The cost will be different if your house is the only one lost in a fire vs 100's of your neighbors also losing their homes from the same fire. Everyone will be trying to rebuild at the same time. And every home will be custom. This will drive up cost.
2. It's the cost to rebuild at the time of the lost and not how much you/Zillow thinks your house is worth now.
3. The amount are separated into different buckets. Pay special attention to the "Dwelling" bucket which is the amount for rebuilding the home. This number will determine everything else (Loss of Use, Contents/Personal Property, Separate Structures) because the numbers associated with those will be a straight percentage of "Dwelling." If the Dwelling is too low, everything else will be low too.
4. Make sure you have "Extended Replacement Cost" and "Code Upgrade Cost." Both are very important and contribute (ie, it is in addition) to the "Dwelling" number, but is also percentage of Dwelling. So again, Dwelling is very important. The combo of these 3 buckets is the max one can get in a total loss to rebuild a home.

Example to make the math easy (the percentages will differ, depending on the insurance company):
-Dwelling: $1,000,000. (includes debris removal, landscaping 5% limit)
-Extended Replacement Cost: 500K (50%)
-Code Upgrade: 100K (10%)
-Separate Structures (pergola, outdoor kitchen, pool, etc). 100K (10%). If a deck is attached to the house, it comes from "Dwelling" and not from this bucket.
-Loss of Use (cost to rent home/furniture while rebuilding): 400K (40%)
-Contents/Personal Property: 750K (75%)

While you are renting a home/furniture while rebuilding, you are suppose to get "in kind" living quarters. So if you lived in a 2500 sf home, then you can rent a 2500sf home until you complete your house. But if 100's of homes were lost, everyone will be trying to rent at the same time, so the cost of rent will go up -- you will be burning though you 'Loss of Use" money faster.

Can't stress enough to make sure the Dwelling is comfortably high, since all other buckets are derived from this number.
scifilover
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Re: House Insurance / cost per square foot

Post by scifilover »

secondcor521 wrote: Thu Jun 23, 2022 3:34 pm I'd like to ask a question related to this topic. Mods feel free to move to it's own thread.

I'm honestly 0% worried about a total loss. None of us smoke, the one kid of mine that burns candles is hyper responsible, everything is in good condition and well maintained, and most of all, the fire department is 1.5 miles away and there's a hydrant next door. Feel free to disagree, but that's my premise.

Let's say for example - not real numbers - my house is worth $500K with a rebuild cost of $300K, and I insure it for the rebuild cost (as my insurer USAA recommends). Let's say actual rebuild cost for the entire thing is actually closer to $400K for all the reasons mentioned above.

Now let's say something happens where I want to make a claim - say, a small kitchen fire. The kitchen repair/replacement/restoration is, say, $50K actual.

Does USAA pay me $50K (minus my deductible I guess) because that's less than $300K that I have it insured for, or some pro-rated amount based on $300K/$400K or $300K/$500K. I'd always assumed the former simply because the prorating is based on approximating numbers for the denominator, but I really don't know.
In the course of ordinary life, a conflagration is rare. Still, they do occur: Paradise, CA, Oakland Hills Fire, and so on. If your home is not subject to wildfire risk, that is good. However, you may also have a conflagration risk if you are subject to EQ risk. The fires which often follow large earthquakes cause conflagrations. The water mains break, there are too many fires for the fire department to respond to all.

These events are as rare as the earthquakes, but they do happen.
secondcor521
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Re: House Insurance / cost per square foot

Post by secondcor521 »

I should clarify that I don't think there is a 0% chance of a total loss. It's that the chance of a total loss is small enough, and the amount of uninsured loss I would have to pay for out of pocket is small enough, and my resources to deal with that small amount of that small chance are large enough, that I have 0% worry about it. I'm essentially deliberately and contentedly self insuring against that risk.

I don't live in a wildfire risk area, and earthquakes here are very rare also.
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