The Price to Repair versus
Building New
Why repairing your home is
more expensive.
Reconstruction vs. New
Construction
There are many reasons why a
client may be required to obtain
a property valuation, including
a mortgage, establishing a
selling price or for insurance
purposes. While the first two
basically use the
same methodology, the insurance
appraisal is completely
different.
The insurance appraisal is used
to determine how much it would
cost to rebuild a home. The
market value and property value
have no bearing on a physical
reconstruction. With the proper
valuation insurance companies
will often offer guaranteed
replacement value which promises
to rebuild even if the cost is
more than what they estimate.
Why Reconstruction Usually Costs
More Then New Construction
Economy of Scale
- When contractors have multiple
homes under construction at one
time, they receive bulk
discounts for lumber, fixtures
etc. Suppliers will compete for
business under these
conditions. However, when you
are buying just one bathtub, and
must match the one that was
destroyed, the cost is more
expensive. This applies to
almost anything in the home
and drives up the cost of
rebuilding.
Demolition and Debris
Removal
- New construction begins on
open ground that may have
some brush removal or
grading of land. When a
home is destroyed, parts of
the home may be standing but
unstable and
require demolition and
removal. There may also be
extensive cleanup after a
fire or windstorm. Some of
the land may have become
contaminated. Often a lot
of work needs to be done
before that first nail can
be hammered in.
Use of Labor
- When several new homes are
being built at the same time, it
is easier to schedule work for
the most efficient use of time.
If a home is not ready for the
electrician, he/she can go to
the next home. When only one
home is being built, the same
type of efficient scheduling may
not be possible.
Access to the Worksite
- With a new construction lot
there is no landscaping, no
mature trees, or even neighbors,
so access to the worksite is
easy. When dealing with
reconstruction, there is
existing landscaping as well as
surrounding neighbors, fences
and other obstructions that may
limit access to the site.
Often-times materials need to be
staged at another site and
delivered in smaller lots which
drives up costs as well.
Building Codes and Inspections
- Older homes were built when
building codes were not as
strict as they are today. When
a home is destroyed, it needs to
be built according to current
building codes. You may also be
required to upgrade even the
undamaged portions of your
home. The building code changes
can add significant cost to
restoring a damaged home in real
costs and delays as the builder
waits on inspections.
Because Reconstruction Cost is
more comprehensive than
Replacement Cost, the carriers
use this as a better
representation of what they can
expect to pay after a loss.
The result is proper protection
for clients that insure for the
proper Insurance to Value.
