Many of us are starting to take a hard look at where every dollar we earn goes. As we review some of our bills, one area that often is overlooked is our homeowner’s insurance. If you are like most of us, we simply pay the bill because it is a must have in the event of fire, flood, or some other disaster. I recently changed my homeowner’s insurance policy based on a combination of local service as well as the increased value of improvements to our home since we purchased it in 2005. Through the process, I found that my insurable value was less than what local contractors would rebuild my home for in the event of a complete loss. That is the primary reason I decided to create this helpful piece.
What is homeowner’s insurance coverage?
Marshall Valuation Service defines Insurable Value as “the value used by insurance companies as the basis for insurance and reflects the replacement cost of physical items that are subject to loss from hazards. Insurable value is that portion of the value of an asset or asset group that is acknowledged or recognized under the provisions of an applicable loss insurance policy, often considered to be replacement or reproduction cost plus allowances for debris removal or demolition less deterioration and noninsurable items.”
How to determine your homeowner's insurance coverage
Your home may be the biggest investment you'll ever make. So if you're serious about protecting that investment, here is some important information to consider when determining the coverage amount for your home.
Make sure that your home is insured for at least 100% of its estimated replacement cost.
To determine your amount of homeowner’s insurance coverage:
Determining your home’s estimated replacement cost is important because this will ultimately determine which policy options are available to you. Since it is impossible to predict today what the exact cost will be to replace your home in the future, it’s important to have enough coverage to account for unforeseen circumstances.
Understand the difference between market value & replacement cost for insurance purposes
Market value is the amount a buyer would pay for a home, including the land, regardless of how much it would cost to rebuild the home. Replacement cost for this purpose is the rebuilding cost necessary to repair or replace the entire home.
Replacement cost IS NOT:
• The market value of the home. • The home’s purchase price or the cost of the land. • The outstanding amount of any mortgage loan.
• The market value of the home.
• The home’s purchase price or the cost of the land.
• The outstanding amount of any mortgage loan.
When buying a new home, be sure to obtain a replacement cost estimate
Before you purchase a new home, make sure that you determine the appropriate amount of coverage needed. Here’s how:
• Ask if a replacement cost estimate is available when you have the home appraised. • Or, consult with your local builder association or a reputable builder for an estimate. • You can also check with your insurance agent to help you with this process.
• Ask if a replacement cost estimate is available when you have the home appraised.
• Or, consult with your local builder association or a reputable builder for an estimate.
• You can also check with your insurance agent to help you with this process.
It’s a good practice to be aware of any architectural details or unique building materials that may affect your estimated replacement cost, such as:
• Upgraded bathrooms or kitchens (including cabinets). • Finished or partially finished basement. • Additional rooms or living space. • Custom molding or arched windows. • Other unique features.
• Upgraded bathrooms or kitchens (including cabinets).
• Finished or partially finished basement.
• Additional rooms or living space.
• Custom molding or arched windows.
• Other unique features.
An appraiser or contractor can help estimate your home’s replacement cost
Professional replacement cost appraisers or building contractors are a good source for obtaining an estimated replacement cost of your home. Estimates from these sources should reflect your home’s features, like those mentioned above. If you are unable to obtain a detailed estimate from these sources, your insurance agent can discuss other options for estimating the replacement cost of your home.
Review your policy annually to make sure that your coverage meets your needs
Have you recently remodeled or improved your home?
When you upgrade or improve your home, you may increase your home's estimated replacement cost. Your insurance agent should be able to help you adjust your policy to meet your coverage needs. Review your policy's provisions; you typically have a specified time period to notify your agent of any remodeling or additions to your home that increases its value by a certain dollar threshold.
Has the rate of inflation risen since your last appraisal?
Insurance companies provide coverage that automatically adjusts each year in an effort to compensate for increases in construction costs in your area. However, certain conditions such as severe weather can increase the demand for labor and materials, and raise costs beyond normal inflation. It is important to update your coverage amount each year to keep up with the changing economy. This is also where speaking with local contractors comes in handy to see if there any market conditions are putting a premium on materials.
What influences the building costs in your area?
Market conditions in your area may impact the amount it will cost to rebuild your home if you experience a loss. Replacement cost estimates are influenced by supply of labor, demand for labor, and the cost of construction materials. Keeping up with the current market conditions in your area, and changing your coverage amount accordingly, will help you maintain coverage at least equal to 100% of the estimated replacement cost coverage for your home.
If you would like more information or would like to schedule a replacement cost appraisal, contact us and we would be happy to assist you.
Here's a good article I am re-posting from the Contra Costa Times dated 09/28/2008:
FRESNO
In a climate where foreclosures are a big presence on the real estate markers, traditional home sellers can face stiff competition.
"Sellers are frustrated," said Greg Kosareff of Realty World Strachan Gamber in Fresno. "They are not getting the traffic. There are so many (foreclosures), and they don't want to compete with their pricing."
Often, bank-owned houses carry deeply discounted prices and receive multiple offers from buyers hoping to snag a bargain.
But there are things home-owners can do — especially since, real estate agents point out, many purchasers aren't interested in bank-owned properties, which can be in poor condition.
"Put it up for sale," said Joan Jolly of Coldwell Banker Premiere Real Estate in Fresno.
"I have buyers who do not even want to look at a foreclosure or a short sale. A short sale can take so long, and foreclosures are not always a good deal. Hidden problems can come up afterward."
Jolly and other agents offered some tips to help traditional sellers compete. Much of the advice is Real Estate 101, but is relevant in today's market.
"Fresh paint, declutter and clean," Jolly said.
Most houses have too much furniture, so she recommended moving much of it out. Family portraits on the wall are lovely to have — except when trying to sell the house.
"You don't want the rooms to look crowded," Jolly said. "Move the family pictures and wedding pictures. Go visit a couple model homes, and you'll get an idea how sparsely decorated it should be."
Street appeal
Nancy Riggs, a real estate broker in Visalia, said a manicured front yard is an enticement.
"Street appeal is extremely important," she said. "The front door and trim should be painted. You want a garden with flowers. You want it very inviting from the front."
Riggs said homeowners should consider hiring a professional "stager" to make the interior presentable. A stager will bring in or take out furniture and accessories to make the property more attractive.
A clean and attractive house will often net a higher price. "Someone will walk into the home that has been staged and fall in love with it," Riggs said.
Professional stager Pam Milam of Reinvented Rooms in Fresno said prospective buyers will often linger longer in a house that is specially prepared. "Make it appeal to those not willing to buy a fixer-upper," she said. "You want to justify the price difference because your house is ideally turnkey."
Milam acknowledged that homeowners must weigh the cost of paying for the staging — which can range from a $300 consultation to a couple of thousand dollars — against the potential reward. It's tough for some sellers to part with the extra money when houses are declining in value.
"They should consider staging in whatever form makes financial sense," Milam said. "It takes every trick in the book right now to get a house to sell."
Upgrade, repair
There is also remodeling — upgrading all-important kitchens and bathrooms and repairing anything that would turn off a prospective buyer. But this can be costly. The owners of a Fresno home Kosareff represents spent about $12,000 getting it ready for scrutiny.
Some homes, however, may need too much work or would fetch too little.
Terance Frazier, a foreclosure expert who works with investors, suggested that people hold off selling their houses.
He said he believes bank-owned properties will be nearly 70 percent of the market in a year.
"The average homeowner would be foolish to try and compete for a sale in this type of market unless there is absolutely no choice," he said.
And sometimes bank-owned houses are without major problems. The best way to be sure, Kosareff said, is to pay for a home inspection.
In many cases, the foreclosures carry discounted prices because lenders are eager to sell them. And people are eager to buy them.
Kosareff recently negotiated a deal where a 2-year-old house with an original purchase price of $536,000 was sold out of foreclosure for $259,900.
The house in northwest Fresno had granite countertops, upgraded appliances and received 13 offers. Kosareff's clients got it because they put 20 percent down and didn't ask the lender for any concessions.
Yet those kinds of opportunities have helped boost overall sales, which have grown each month since January.
In addition to the above recommendations, you may also want to get an appraisal so that you understand the current market conditions in your home's neighborhood. It can also give you a very accurate indicator of your homes worth. Rest assured, you can count on Cline Appraisal for your valuation needs as each appraisal is held to the highest quality and professional standards.
Clayton’s House of Cards…
As a follow up to the 60 Minutes expose that showed Jan. 27, 2008 regarding the recent mortgage meltdown and falling home prices, some local commentary on the recent real estate market as it relates to Clayton & neighboring communities would be helpful.
60 Minutes explained that “in the last six months, Americans have seen their investments shrink, their property values plummet, and the country edge closer towards a recession. At the heart of the problem is something called the subprime mortgage crisis, which began last summer and continues to ricochet through the economy.” So, just how has this Subprime Tsunami affected Clayton? Three major forces were at play:
In preparing this article I spoke with several real estate professionals in the area. The consensus was that we are in a declining market. Opinions varied on the length. Some thought we have already hit bottom while others believed it would take a good 2 years before we start seeing appreciation. While there has been some rigor placed back into the lending industry there is still a lack of credibility that will take some time to rebuild. Also, there are some great opportunities for a savvy buyer.
I spoke with Greg Farrand, President/Broker of HomEquity and he had this to add:
"There has been so much upheaval in the mortgage industry and so many lenders have shut their doors. Many homeowners are stuck in situations where their loans are adjusting and their payments are sky-rocketing; yet, they are unable to refinance. My brokerage was fortunate that we did not make a lot of sub-prime or creative financing loans over the past few years. In fact, many of the loans we made were to take people out of these types of loans. Even at times when the interest rate was higher than their existing interest rate, we recommended that clients refinance to eliminate the risk of not being able to refinance when the value of their homes declined."
To localize the current impact on home values, it might be wise to get a copy of Kenny Rogers “The Gambler” grab your whiskey and read on…
Know When to Hold em…
In general, average property values reached a peak in mid 2005, held relatively stable into 2006, and began to trending downward the later half of 2006 and through 2007. Currently, values are trending down.
Regionally, Contra Costa County’s Median Price declined 12.36% on a year over year basis and Clayton has experienced an average rate of decline of (5.8) %.
County / City
# Sold
Dec 2007
Dec 2006
% Change Yr-to-Yr
Contra Costa County
809
$500,000
$570,500
-12.36%
ANTIOCH
69
$350,000
$520,000
-32.69%
BRENTWOOD
51
$439,000
$649,000
-32.36%
CLAYTON
11
$650,000
$690,000
-5.80%
CONCORD
80
$409,500
$499,000
-17.94%
DANVILLE
77
$949,000
$995,000
-4.62%
LAFAYETTE
10
$1,102,500
$948,000
16.30%
OAKLEY
40
$417,000
$509,750
-18.20%
PITTSBURG
47
$325,000
$448,250
-27.50%
PLEASANT HILL
20
$585,050
$649,500
-9.92%
WALNUT CREEK
62
$583,000
$640,000
-8.91%
Source: Data Quick Systems
Data suggests that Clayton’s rate of decline is not as severe when compared to some of the neighboring communities such as Brentwood, Antioch (in East County) vs. Concord, Walnut Creek, and Pleasant Hill (in Central County).
Know when to fold em…
When evaluating the market, one must always is to consider the market as a whole and from an informed buyer’s perspective. Each neighborhood and property has to be viewed on a case-by-case basis.
Before a home goes into foreclosure, the seller may try to sell as a short sale. A short sale can be a long process that involves bank approval for the seller to pay off the existing mortgage for less than is owed (thus the name, short sale). When a short sale does not sell, it usually ends up in foreclosure status. Although difficult to obtain measurable data, there is an increase in short sale activity as reviewing MLS has been noticed.
As Foreclosure activity mounts, it will set the market as we are seeing in parts of East Contra Costa County. In other cases, they have been incidental here in Clayton although they are on the rise.
Know when to walk away & Know when to run…
It is no secret that foreclosure activity is closely tied to a decline in home values. With today's depreciation, an increasing number of homeowners find themselves owing more on a property than it's market value. This sets the stage for potentially defaulting if there is any negative impact to the pocketbook. Examples would include mortgage payment shock due to interest rate reset, a job loss, a medical emergency that results in large unplanned expenses or the owner needs to move,"
Recent data shows that the number Notices of Defaults have increased in the Bay Area a staggering 136.9% (of which Contra Costa County increase is 151.8%) compared to the same time a year ago. This suggests that further softening will continue.
Notices of Default (Houses and Condos)
County/Region
2006Q4
2007Q4
%Chg
Bay Area
5,362
12,704
136.9%
Alameda
1,173
2,573
119.4%
Contra Costa
1,511
3,805
151.8%
Solano
781
1,793
129.6%
For Clayton, foreclosures (the total of pre-foreclosure, Bank Owned, and Homes up for Auction) were reconciled to 43 properties with prices ranging from 350,000 – 1,000,000+ based on public and syndicated data sources. In some areas, especially where you had a lot of spectacular activity, foreclosures and short sales have essentially become the market in places like Antioch & Brentwood.
Multiple Listing Service shows the following for Clayton’s single family dwellings that sold for under $1 Million dollars:
Data
Active
Pending
No of Listings
45
Ave. Original Price
$ 704,895
$ 670,868
Median Orig. Price
$ 699,000
$ 650,000
Ave Current List
$ 669,084
$ 645,868
Median Current List
$ 672,000
$ 639,490
Average DOM
113
95
Source: Multiple Listing Service
The rationale for including homes that sold for under $1MM is to help isolate current market conditions for the majority of Clayton’s inventory. Providing some historical comparison of the above yields:
3 Months
6 Months
12 Months
26
53
148
Low Sale
$375,000
$399,900
$434,950
$395,000
High Sale
$1,000,000
$998,000
$999,980
Median
$639,490
$590,000
$598,500
$623,500
Average
$669,084
$645,868
$645,762
$632,557
$650,293
66
46
Key Highlights to note:
There are some keys that may change current market sentiment in the near future:
“Now evry gambler knows that the secret to survivinIs knowin what to throw away and knowing what to keep.”
There is no doubt; Clayton has many positive features that make it very desirable:
In all, Clayton is a wonderful place to own a home. Yes, the current market will have its ups and down, but for me “Therell be time enough for countin when the dealins done”
Casey Cline is a Real Estate Market Analyst & licensed real estate appraiser for Cline Appraisal. He lives and works in Clayton, Ca.
I am often asked what the return on investment is for common remodeling projects. This is great question as we all strive to do the fiscally prudent improvements on our homes to make them nicer and more valuable.
Many ask, “Should I remodel my kitchen or bathroom?”, and whether your costs will be recouped. It’s a tricky question to answer, but if you’re thinking of doing it, you might as well check the numbers to get a ballpark estimate:
I recently ran across this article on Remodeling Online:
Again, if it's a ballpark you are looking for, this is a helpful tool to helping you figure out where you can get the biggest bang for your buck!
Recently, I was asked to help clarify & educate a few clients on a little known bill that was signed into law on October 5, 2007, California Senate Bill 223 (CA SB 223).
To summarize, the bill prohibits a licensed appraiser from engaging in any appraisal activity in connection with the purchase, sale, transfer, financing, or development of real property if his or her compensation is dependent on or affected by the value conclusion generated by the appraisal. Probably, the biggest reason why an appraiser can’t have contingent fees is that it takes away the whole ‘independence’ argument out of the picture.
The bill also prohibits anyone with an interest in a real estate transaction involving an appraisal from improperly influencing the reporting, result, or review of a real estate appraisal sought in connection with a mortgage loan.
Some examples of improper influence or attempts to improperly influence an appraiser would include coercion, extortion, or bribery, the development, reporting, result, or review of a real estate appraisal sought in connection with a mortgage loan.
Remember, the appraisal is one of the major factors that lenders rely upon in making a lending decision. To help with that decision, appraisers need to perform independent, unbiased, objective analysis to support their final opinion of value.
The bill does not prohibit a person with an interest in a real estate transaction from asking an appraiser to do any of the following:
1. Consider additional, appropriate property information. 2. Provide further detail, substantiation, or explanation for the appraiser’s value conclusion. 3. Correct errors in the appraisal report.
1. Consider additional, appropriate property information.
2. Provide further detail, substantiation, or explanation for the appraiser’s value conclusion.
3. Correct errors in the appraisal report.
So, appraisers are still required to perform quality professional appraisals that can be relied upon. Rest assured, you can count on Cline Appraisal for your valuation needs as each appraisal is held to the highest quality and professional standards.
For more laws that may impact you, I encourage you to refer to the California Department of Corporations.
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