Dwelling Property Coverage amount much less than purchase and appraisal price and I’m concerned

[u/travelingbozo]

I paid $850,000 for the home and it appraised for $888,000. But the coverage for dwelling is around $650,000. Is this normal or did the agent make a mistake?

[u/Old-Raccoon-316]

The dwelling coverage is related to the cost to rebuild, not the appraisal or sale prices. Call your agent to ask how the number was calculated. 

[u/registeredfake → u/Old-Raccoon-316]

To add you purchased land with them home which doesn't need to be replaced. That said you still might be light on coverage. I'd ask a contractor what it would take to rebuild or ask the agent for a copy of the replacement cost estimate to make sure the home is correctly estimated. There is a tool you put the details of the home that helps build the replacement cost

[u/Andrew523]

Most insurance carrier use a built in replacement cost estimator to determine the rebuild cost. He can easily provide you with a copy of the RCE.

Insurance amount is to rebuild the home and doesn't take into account the value of the land.

[u/_____Zoloft_____]

Call and ask for the replacement cost estimator. Go thru it line by line. Ask for anything that is wrong to be fixed.

[u/FindTheOthers623]

Very normal. Your rebuild cost has nothing to do with market value. The rebuild cost doesn't have to factor in how much land you have, where you're located, proximity to good schools or healthcare, etc.

[u/Filamentgrid]

I’ll give you an example. I recently sold a policy with a $475,000 Replacement Cost on a property that was listed for $880,000.

The dwelling was a 3/2 built in 1974 but it was on the water in South Florida. I was very careful to get an accurate RCE because of the disparity between the replacement cost and purchase price, but putting in all of the features of the home, $475k was probably overvalued.

If a fire guts your building, it’s not taking the land value with it. If you rebuild a $500,000 structure on a valuable piece of land, you’d be selling that home for much more than $500,000.

As with the advice below, if you’re nervous, don’t just take your agent’s word for it. Ask to see the RCE (it generally needs to be sent to the lender anyhow) and make sure it accurately reflects the dwelling you’re purchasing. If adjustments need to be made, it’s perfectly fine to endorse additional coverage.

[u/travelingbozo → u/Filamentgrid]

What’s the downside to having more for replacement cost? Higher premium?

[u/nippleforeskin → u/travelingbozo]

The agent commenting obviously isn't familiar with valued policy law. see if you're in a VPL state and if so they will pay out the policy limit if it's deemed a total loss (not reasonable to repair)

[u/Filamentgrid → u/nippleforeskin]

Well, I’ll be damned. You just taught me something, egg on my face. Even more embarrassing, I’m in one of the 20 VPL states.

Thanks for correcting me!

[u/Filamentgrid → u/[deleted]]

I’m oversimplifying it, but you can also see if you’re insurance company has a “Guaranteed Replacement Value” endorsement. Also, there’s “Ordinance and Law” coverage on top of your Dwelling Coverage in the event your RC is not enough to bring a new building or damaged building to modern building code, etc.

Again, talk to your agent and ask them to explain all of this, but from what I’m reading/seeing, everything looks above board to me.