Home Valuation lower than rebuild cost- huh?

G

gizmo

Guest
So, can anyone explain to me please, house was valued at half what it would cost to rebuild HALF.... so, if God forbid my house burned down, what would I get paid out for? The market value which is half what it costs to replace? Also, if this be the case, what happens with my mortgage? I end up stumping up the other half? Totally confused, how can something be worth half of it's cost to create? Can someone please explain, and is there any use in paying a premium for the rebuild cost, as I'd imagine the max they'd pay out is the valuation and not the rebuild cost... head is melted, help.........
 
Firstly I presume you are taking about insurance valuations here

Secondly, in terms of building the house, are you including the cost of the site?

Are you basing the cost of rebuilding the house on the cost you paid to build the house at the time or what it would cost to rebuild it now?. Costs have gone down significantly.

Your mortgage is a debt to your lender, it sounds, like a lot of people in this country, that you are in negative equity.
 
No, I am not in negative equity, but i am very confused, and seeking answers not questions...... The rebuild cost is simply that, the cost to rebuild and not including the site, and the valuation was to sell the house, the rebuild cost is what is estimated by insurance company./
 
gizmo said:
So, can anyone explain to me please, house was valued at half what it would cost to rebuild HALF.... so, if God forbid my house burned down, what would I get paid out for? The market value which is half what it costs to replace? Also, if this be the case, what happens with my mortgage? I end up stumping up the other half? Totally confused, how can something be worth half of it's cost to create? Can someone please explain, and is there any use in paying a premium for the rebuild cost, as I'd imagine the max they'd pay out is the valuation and not the rebuild cost... head is melted, help.........
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Ignore the market value. Insure your property for the full rebuilding cost, NOT the market value. You owe your mortgage whether you have household insurance or not. If you are adequately insured, the vast majority of policies will provide you with enough money to reinstate your home. Insurers will not concern themselves with how much your house is worth.Like i say, ignore the market value of your home...it is the rebuilding cost of your home that is relevant when it comes to insuring your home.
 
If your house burns down, you need to be insured for the cost of re-instating the house. This has nothing to do with the market value of the house, or your mortgage provider.

However, they will only pay what the actual re-instatement cost is, not what you insured it for.
Who decided what re-instatement cost to insure your house for. Maybe you need to work this out accurately in current market to ensure that you are not overpaying
insurance.

Also, this is standard worldwide. I know the pitiful state of the Irish economy can be blamed for lots of things, but I cant see how you can blame it for you not understanding what the re-instatement cost of your house is.
 
Another way to put it is that the house is worth more to you burnt down than if you sold it.
 
Bronte said:
Another way to put it is that the house is worth more to you burnt down than if you sold it.
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No, this is not correct. In a reinstatement policy, which most household policies are, the insured is only entitled to reinstatement (ie, putting the house back to a condition as new) if the sum insured is adequate and if the house is rebuilt.Otherwise the settlement, depending on the policy wording, will allow for indemnity (that is reinstatement less wear and tear) or a diminuition in market value (in other words, how much has the value of the property decreased by as a result of the damage for which there is cover under the policy).
 
My understanding is that if your house burns down and it costs 150K to rebuild it then that is what you get even though it might cost 100K to purchase the property before it was burnt down.
 
Bronte said:
My understanding is that if your house burns down and it costs 150K to rebuild it then that is what you get even though it might cost 100K to purchase the property before it was burnt down.
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Thats true....you would be entitled to the rebuilding cost, regardless of the market value of the property...but you would only get the rebuilding cost if the cost is actually incurred. In other words, you got to rebuild, or else you will only get an indemnity settlement or a loss of market value, whichever is the less. It is for that reason the house is not worth more burned down than sold. You really wont benefit financially from having your burned down house....but, if you reinstate, you will get your property restored to a condition as new, which is a legitimate benefit under the policy.
 
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