P-III.B · Homeowners' Insurance Valuation
What a replacement cost estimate must include
A replacement cost estimate must account for the reasonable cost to rebuild the home, including:
labor and materials;
overhead and profit;
demolition and debris removal;
permits and plans.
It may not be based on the resale value of the land or on a loan balance, because a dwelling limit insures the building, not the lot.
Example: a house might sell for $1,100,000, carry a $700,000 mortgage and cost $550,000 to rebuild. Only the $550,000 rebuilding cost is the right basis for the estimate.
Remember
· Include labor, materials, overhead, profit, demolition, debris removal, permits, plans.
· Never base it on land resale value or the loan balance.
CA
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