With the housing market in the doldrums and in many markets across the country homes are worth an average 6% less just from June 2010 to June 2011 many homeowners are asking…
- Why has my insurance coverage increased when the value of my home has decreased?
- Why is my coverage so high when homes in my area are being built for less?
While most homeowners track the market value of their homes, they rarely know what it would cost to rebuild with the same materials, craftsmanship and improvements added over the life of the home.
Even while the real estate market remains in a slump, and the cost of building materials continues to rise. Although the prices of some components, such as labor, concrete, sheetrock and lumber, have not increased over the last year, several materials have seen price increases:
- Asphalt roof shingles: +15%
- Diesel fuel and gasoline: +39% (almost $1 more than last summer)
- Steel: +11.5%
- Copper for plumbing: +15%
- Carpet: +5.5%
- Fabricated metals for heating and air conditioning ducts: +4%.
According to the US Department of Labor, the net increase for all residential building components is 6.7% from September 2010 to September 2011, and 8.1% for residential maintenance and repair. Some factors that impact new construction costs are favorable. Financing is very attractive, sales taxes and permit fees are not increasing, and labor rates have been fairly stable. In addition, when constructing new homes builders can select less costly components to keep the price down. Conversely, material prices are slightly higher and diesel prices drive up the cost of operating equipment.
Rebuilding a home after a loss usually involves a restoration contractor due to processes that are significantly different. Matching undamaged finishes, water and mold mitigation, and demolition are not skills required for new homes. Restoration contractors often need special equipment that new home builders would not. Finally, in damage repair the option to choose the least expensive components does not exist; the contractor must use the materials that existed before the loss.
“When demand is down, contractors shave profit margins and economize to remain competitive…. In the insurance industry, restoration contractors, working under time-is-of-the essence conditions, tend to hold profit and overhead rates at industry-standard levels.”