Home Insurance: Replacement Cost vs. Market Value

When you purchase a home, and get a homeowners insurance policy, you’ll make a number of decisions about your coverage. One of the most important is whether to insure your home for its replacement cost or its market value. Understanding each option will help you make an informed choice that safeguards your home and your family’s financial future.

What Is Replacement Cost?

Replacement cost is the cost necessary to repair or replace your entire home. When you insure your home for its replacement value, your insurer will reimburse you for the cost of rebuilding or repairing your home, based on the size and structure of the home that was lost or damaged.

The most accurate way to determine the replacement cost of your home is to hire a building contractor or other building professional to produce a detailed estimate. Only the cost of the property’s structure and its associated systems, fixtures, and finishes will be included in the estimate; land value is included in a home’s market value but should not be included in the amount of insurance you buy.

Benefits

In the event of a loss, replacement cost coverage will help your family return to their home and usual quality of life with minimal financial interruption. For the best protection, experts recommend that you insure your home for at least 100 percent of its replacement cost.

Risks

Replacement value can change over time, so you should review your policy annually to make sure its coverage meets your needs. Inform your insurer if you have upgraded or improved your home, because these alterations may increase your home’s estimated replacement cost. Also, you’ll want to stay informed about changing market conditions in your area. Rising labor, materials, and transportation costs can directly affect your home’s replacement value. For maximum protection, consider a policy that includes an inflation clause that automatically adjusts coverage and premiums to account for changes in construction costs.

What Is Market Value?

Market value is the amount that a buyer would pay to purchase your home and its land in its current condition. Unlike your home’s replacement value, its market value is influenced by factors beyond the material and labor costs of repairs or reconstruction, such as proximity to good schools, local crime statistics, and the availability of similar homes. Also, the land itself will be included in the home’s market value, although it will not be covered by the homeowners policy.

Benefits

In some cases, market value coverage may be the most practical option. Take the example of an ornate older home. In today’s market, the cost of rebuilding or restoring artisanal woodwork, masonry, and plastering to their original condition may be much higher than the home’s purchase price. Therefore, the replacement policy premiums for the home would be high. (Special policies are available for some historic homes, but these also come at a higher price.) For a cash-strapped homeowner, buying a policy based on market value offers the best chance to recoup at least partial expenses after a loss.

Risks

When you insure a typical home for its market value, you are at risk of having incomplete coverage. For example, imagine that a family buys a home for $175,000 and takes out a homeowner’s policy for the same amount. The replacement cost for the home, though, is $225,000. If a fire or other insured event destroys the house, the insurance settlement would be $50,000 less than the actual replacement cost of the home. The family would either have to make up the difference themselves or build a new, less expensive home.

Article submitted by Brennan Purdy of State Farm Insurance

My vision is to be an insurance professional whose actions are driven by keeping the customer's best interest as my primary goal. My staff will treat all my customers in a caring, friendly, and professional manner. My office will provide warm, efficient, and seamless services to our customers at all times. I expect my business to be comprised of knowledgeable, multiple-line customers who see my office as their first and best choice for all their insurance and financial service needs

For more information on these and other home safety tips, stop by my office or visit www.brennanpurdy.com. My office is conveniently located in downtown Bethel. 203-798-7300.                   211 Greenwood Avenue , Bethel, CT 06801

 And a note From Judy: If you have a question about buying or selling Real Estate in Fairfield County, and are in need of an Realtor to represent you, I invite you to contact me, and if you have an idea for a topic that you would like to see on The CT Realty Blog, please include it in the "Post a Comment" section link below this post. We appreciate the feedback and look forward to providing you with the best real estate content, advice and service in Fairfield County, Connecticut.

Making an Offer To Purchase On a Home

If you are new to the whole home-buying process, and are ready to look at houses, or have stumbled upon one at an open house,  there are a few things you should know about placing your offer to purchase on a home.

First things first. Make sure you that you represented by a Realtor with strong negotiating skills.

Even if you have a few prior home purchases under your belt,  there are changes to local customs,  standard contingencies that were not  necessary even a few years ago, and additional situations you might get yourself in, where having a seasoned, professional and experienced Realtor (like me) would be of  great benefit to you.

Making an offer on a home can be intimidating, whether it's your first home, your second home, or even  your fifth or sixth home. It's almost like asking that girl or boy you had a secret crush on in high school for a date. Of course, there is very little risk of making a fool of yourself during the bidding process, but you really should know how to play your cards the right way before you "tip your hand", so to speak.

 
Once you’ve decided on the home you want to buy, your Realtor will draft a binder agreement, which is a pre-printed form that I filled out  with the address of the property, conditions of sale, and contingencies.  This agreement is to be signed by you and accompanied with a 1 percent deposit check.  Also, I include a pre-approval letter from the bank or mortgage company, as well as the state required signed disclsoure forms.    This binder agreement will in turn, be submitted to the sellers agent, or directly to the seller (FSBO's)

That's when we really begin. The seller can respond in one of three ways: accept the offer, "counter" it with a different price and/or terms, or reject it.

If you choose to make what  could be considered to be  a low offer-

Most sellers assume, especially in a buyers market, that you would bid below asking price, unless the home was priced below market value in order to sell it immediately.

If you happen to look at the statistics that I post weekly in Easton, Fairfield, Norwalk, Trumbull or Westport, or look at the Annual Market Reports that I also offer right on this site, you will note that on average and throughout all these towns, the sale price to list price ratio is about 95 percent.  Many buyers decide to come in at around the 90 percent mark. (Not always the smartest idea, see this post), but again, that'd assuming that the home is not grossly overpriced or deeply discounted.

But,  if you bid 20 percent below what a seller wants, it may be a tougher negotiation. Many experts advise against subtracting more than 10 percent from the owner’s asking price, although you can  certainly sweeten a relatively low offer price by guaranteeing the seller a quick closing, few or no contingencies,  and/or  a larger deposit.

When a "Highest and Best Offer" is requested.

Sometimes there are multiple bids on a property, or the sellers ( or their agent)  get restless during negotiations and ask you to submit your highest and best offer for the home. Don’t go that extra mile if you are not 100 percent sure that you want this particular property. A highest and best bid is just that.  Think of it this way- if your H&B bid was for $800,000 and  you were upset if you found out that you struck out on negotiations because $805,000 was the winning number, that you would not be upset that you didn't bid the 805k.  You would be at ease because you gave it your best shot, or offered the very top amount that  you would pay. If the sellers wanted just $100 more, you would feel the same way. It was enough.  That, by definition is highest and best.

Full price offers

There’s nothing wrong with agreeing to pay the seller’s full asking price without negotiating at all . If the home of your dreams  is worth the price it is listed at, and you really want it, go ahead and just offer to pay the full asking price. There is no shame in that.  Do you want to see your dream home slip through your fingers because you want to pay $1,000 less for it? Another buyer may show up five minutes after you, eager to pay that difference- or push you both into a bidding war, where you end up paying OVER asking price.

Which leads us to ..... Bidding wars

If you find yourself in a bidding war situation, it is entirely up to you as to what your next steps are.  It can be very frustrating.  As one of a sometimes unknown number of rivals in a bidding war, you’re competing against each other blindfolded. Neither you nor your agent will know what price the other offer or offers are, and what any terms of those offers are.  *Refer to Highest and Best Bidding.
Every offer situation is different. Each home is different. There are a few standard "rules" for offers, but remember if something is important to you, put it in writing.

It is always best to keep email records, and if possible written records of all of your correspondence, questions, and written documentation, including any changes to agreements made with any involved parties.

Buying or Selling a Home in Fairfield County? We'd love to represent you.

Feel free to email us here or visit our main  site at

www.CThomesAndRealEstate.com

If you have a question about buying or selling Real Estate in  Fairfield County, and are in need of representation, I invite you to contact me. I know the market like the back of my hand, know marketing inside and out, am a skilled negotiator- and I'd love to be on your side :) - Judy

Marked Improvement In Fairfield County CT's Shadow Inventory.

Significant changes for the better in Fairfield County's shadow inventory  have occurred in the last  three months and signal that better health for our real estate market is not only on the horizon, but may, in fact already be here.
 
Bloomberg Financial reported that the "pending foreclosures that threatened to flood the U.S. housing market and depress prices is dissipating as banks sell off distressed properties and let borrowers sell homes for less than they owe."

RealtyTrac Inc said  that home seizures plunged 18 percent from 2011 and it is a sign that banks are turning to repossession alternatives, RealtyTrac Inc.  said earlier this week,  however they also noted that initial notices of foreclosure increased.

Other experts agree- the looming shadow inventory, (or homes that are seriously delinquent, in the foreclosure process or owned by banks and not listed for sale)  plunged in April to the lowest level in more than three years according to  CoreLogic Inc.
 
Locally, the in stage and REO properties have taken a whopping 38 percent drop countywide since March of 2012.  Out of the 23 towns or cities in the county, EVERY one has shown a decrease in looming shadow inventory.

What looked very gloomy only a short time ago (see March 2012 and November 2011 reports) has turned into a ray of light, and much more than just a glimmer of hope.  The sharp drop in numbers that has occurred over the last 3 months is not a fluke, and is a strong indicator of the following:

• More Homeowners in distress have worked out their loans and/or become current with their payments.

• Banks are more willing to help homeowners refinance.

• Banks are more willing to assist homeowners to sell their home via short sale before any foreclosure action begins.

• Banks are placing their inventory on the market a lot faster than they have been previously.

 
The most improved towns and cities on the distressed properties list are  Greenwich, Sherman, Darien,  Wilton and Westport who all saw decreases of 50% or more.

Least improved town and cities  are Stratford, Shelton, Bridgeport and Ridgefield, who saw decreases anywhere from 26- 31 percent.

The nearly 40 percent drop in distressed properties in this short period of time is a significant help to the Fairfield County Real Estate Market. We are rebounding, just don't count on those chickens just yet.

SOURCE: Market Data is compiled from the GFC-CMLS and represents information obtained through our local MLS system. There may be a lag time on data.

Buying or Selling a Home in Fairfield County? We'd love to represent you.

Feel free to email us here or visit our main  site at

www.CThomesAndRealEstate.com

If you have a question about buying or selling Real Estate in  Fairfield County, and are in need of representation, I invite you to contact me. I know the market like the back of my hand, know marketing inside and out, am a skilled negotiator- and I'd love to be on your side :) - Judy

The Importance of Creating a Home Inventory

While no one likes to think about any kind of losses in their home, be it by mother nature or by theft, there are some good ways  to protect yourself in case  an unfortunate event happens to you.

A home inventory is an excellent way to expedite the claims process after an insured theft, damage, or loss. This inventory can take several forms, but usually it’s a list of the insurable items in your home, along with information about each item’s value. If you do experience a property loss, your inventory will assist in the settlement of a covered loss or claim. Here are a few tips to help get you started.

Choose A Method

There are several ways to create an effective home inventory.

Perhaps the easiest do-it-yourself solution is to make a video walk-through or take a series of photographs of your home. This visual record can stand alone as your inventory, but for added security combine the photos with another inventory method. For example, you could fill out a home inventory checklist (pdf). Appropriate versions are available online or through your insurer.

There are several digital methods as well. To customize your information, create a home inventory spreadsheet on your home computer. For greater efficiency but a bit less flexibility, purchase a home inventory software program or sign up for an online inventory program. Look for programs that walk you through the inventory process, including attaching digital photos.

The most convenient method – but also the most expensive – is to hire a home inventory company. If you choose this option, be sure to check the credentials of candidate companies carefully.

What Items Should You Include?

Your home inventory should support the claims process for events ranging from the total loss of your home by fire, or other named perils, to the burglary of a few specific items.

A good way to ensure proper coverage is to move from room to room, recording items as you go. Pay special attention to the most valuable items, such as antiques, jewelry, and electronic equipment. Also, don’t forget to include items in your basement, attic, garage, and any detached structures such as tool sheds.

If you have any questions about which possessions are covered by your policy, contact your insurance agent.

Record Information

To establish the ownership and value of your property, your home inventory should include as much of the following information as possible:

•What: Identify the insurable items in your house, either by room or by type. Provide a brief description of each item, including brand name, model name, and serial number. Establish ownership by attaching receipts and/or photos whenever possible. Update your inventory regularly to add or remove items.

•When: Record the purchase or acquisition date for each item. Attach receipts, when possible.

•How much: Attach receipts, credit card statements, or other documents of transaction. For appraisals on items such as antiques, art, jewelry and collectibles, be sure to include the name and address of the appraiser.

Don't Forget to Make Backup Copies

Don’t let your home inventory become part of a property loss. Whichever inventory method you choose, be sure to keep a copy in a bank safe deposit box or other secure location away from your home.

Article submitted by Brennan Purdy of State Farm Insurance

My vision is to be an insurance professional whose actions are driven by keeping the customer's best interest as my primary goal. My staff will treat all my customers in a caring, friendly, and professional manner. My office will provide warm, efficient, and seamless services to our customers at all times. I expect my business to be comprised of knowledgeable, multiple-line customers who see my office as their first and best choice for all their insurance and financial service needs

For more information on these and other home safety tips, stop by my office or visit www.brennanpurdy.com. My office is conveniently located in downtown Bethel. 203-798-7300.                   211 Greenwood Avenue , Bethel, CT 06801

 And a note From Judy: If you have a question about buying or selling Real Estate in Fairfield County, and are in need of an Realtor to represent you, I invite you to contact me, and if you have an idea for a topic that you would like to see on The CT Realty Blog, please include it in the "Post a Comment" section link below this post. We appreciate the feedback and look forward to providing you with the best real estate content, advice and service in Fairfield County, Connecticut.

Tenants Beware- Are You About to Rent a Foreclosed Home? Did You Think to Check?

Nobody seems to do any kind of checks on the Landlord- and they should. If you are looking to rent a home, you already now that the Landlord will want a recent credit report and references. Have you thought about making sure that your prospective landlord actually owns the property? and that he/she has the right to rent the property?

Even if the property is listed in the MLS, it does not necessarily mean that the listing agent has performed due diligence to make sure that the person that shows them the property and purports themselves to be the owner  is in fact the said owner of the property, or has the legal right to rent it.

Recently, on the news was the case of  a rental scam artist, who took advantage of the flood of neglected, empty houses on the real estate market caused by the huge increase in recession-driven foreclosures, and was able to show the property as his own, obtain a security deposit and first months rent, and NEVER delivered the property as promised. He couldn't. He did not own it.  Those would-be tenants lost their money.

How does this happen? Homes owned by banks and other financial institutions may take months, or even years to sell, leaving them unchecked for the duration and sitting targets for the scammers. Don't think that it will not happen in your area. Others have thought the same thing. Don't fall victim to traps.

In another case, an individual lived in, and paid rent on a house for over a year before finding out that he was unwitting and unwilling participant in  a rental scam and that the "landlord" didn't actually  own the house.

and don't forget

... no matter how nice the property appears, and how well kept is seems to be, is it possible that the home is considered a distressed property?  A distressed property  means that the home is under some stage of the foreclosure process. Would you want to rent a home that was in imminent danger of being foreclosed?

Don't be fooled or scammed. Do your homework and hire an experienced agent  who knows to check these things, and  just as important-  knows how. - and I just happen to know someone.:)

Contact  me today and I will help you find your next home.

If you are out of our service area, we offer a FREE referral service to a top agent in your neighborhood, or anywhere in the country. Click here for more info

Buying, Selling or Renting a Home in Fairfield County?  We'd love to represent you.

If you are in the area, or would like to be, feel free to email us here or visit our main  site at

www.CThomesAndRealEstate.com

If you have a question about buying, renting or selling Real Estate in  Fairfield County, and are in need of representation, I invite you to contact me. I know the market like the back of my hand, know marketing inside and out, am a skilled negotiator- and I'd love to be on your side :) - Judy

AND.... If you have an idea for a topic that you would like to see on The CT Realty Blog, please include it in the "Post a Comment" section link below this post. We appreciate the feedback and look forward to providing you with the best real estate content, advice and service in Fairfield County, Connecticut.