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why is my home insuarence appraisal for my home higher than the mortgage lender and county appraisal

i have been in my new home less than two months and my homeowner insuarence company appraised my home higher (by $50000) than the mortgage lender and county appraisal. they claim that the latter two are market based, but i know for a fact that the physical replacement of my home is much lower than waht the insuarence are quoting. i wonder whether this is a common occurence.
  • October 07 2009 - Schenectady
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Answers (4)

"Your insurance company should be looking at the replacement cost of your home while your mortgage company should be using market value."
We get this question every single day.
  • February 25 2010
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Home replacement cost calculations are what home insurance rates are based on, but do not mean you would get your home replaced. Your insurance will pay up to the amount insured and usually up to an additional 25%.

Appraisors and the county will come up with their own appraisals, for tax and value purposes. Appraisors also usually do a replacement cost calculation as well, usually located on the bottom of the 3rd page of an appraisal. From my experience in insuring thousands of homes, this replacement cost cacl.approach on the appraisal should come in very close to the replacement cost your insurance agent determines (within 10%) or there is a problem on one or the other of the calculations.

Some appraisors dont do a good job, ( especially now that mortgage lenders cannot pick their appraisor any more and it is now common to have an appraisor from a different county doing the appraisal on your home (how accurate is that going to be?) Or your agent made an error. Either way it is important for you to know if you want to have adequate insurance for your home.

Keep in mind that the market value has nothing todo with replacement cost. ANd county appraisors typically come in on the low side or high side depending on the county. (tax revenue is based off this number and yes , you cann appeal if your vlaue has changed a lot or seems to be grossly inaccurate.)
  • February 24 2010
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From what I have seen, this is really common.  Most insurance companies dont do a full inspection prior to issuing an insurance policy, so they tend to take the housing sq ft and basic details and then estimate replacement cost as if it was the best quality materials and during a real estate boom.   I recently saw a house with a mtg appraisal of $220K and an insurance appraisal of $500K.  

The other thing to keep in mind is that some appraisers will not value a home much above the selling price.  Since that is the price it is selling for now, they dont want to say the market price is significantly above that.  If you got a good deal on your home, the appraisal for the mtg may not be any more accurate then the appraisal for the insurance. 

Hope this helps

  • February 11 2010
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It does happen. Your insurance company should be looking at the replacement cost of your home while your mortgage company should be using market value. God only knows what the government might be using. Market values have changed a lot over the last few years, many states experienced a big swing up in market values, followed by a big drop down. These values are not driven solely by the cost to build your home in the first place, but also by location, special features and additions, the number of homes for sale and the number of buyers in your market. And don't forget the cost of the land your home sits on, if available lots are scarce and expensive the market value can be considerably higher than the replacemanet cost. And if lots to build on are plentiful and cheap, the oppsite can be true.

The replacement cost of your home depends on the current price of building materials like lumber and concrete as well as the cost of labor. There are other considerations such as demolition & debris removal as well as the quality of interior materials like flooring, counter tops & bath fixtures. Rebuilding an existing home is more expensive than building a new home as the crew has to work around all the existing structures in your area as well as existing utilities and landscaping. 

Most insurance companies use established and reputable tools to determine the replacement cost of your home, I'm sure your company is doing the same. They might also be insuring you slightly over the cost to rebuild to account for any unforseen additional costs or inflation. The cost to rebuild at the time your policy is issued could be X, but next month or next year it could be Y, so having 125% coverage to cost is not uncommon.

If you doubt your current insurance company, shop around, you just might find they are right on.
  • February 11 2010
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