Imagine this scenario: you list your house to sell and somewhere along the road it gets vandalized. Or worse–gets caught in the middle of a natural disaster (trust us, we’re knocking on wood right now, too). If the house is underinsured you will have to pay out of pocket for the damages your insurance won’t cover.
Now you can’t put your home on the market because you have to sink all your funds into rebuilding.
According to a Marshall & Swift/Boeckh study in 2014, 59% of homeowners are underinsured.
Yes, updating your homeowners insurance may mean a higher premium for you. With so many people traipsing through for open houses, private showings, and broker tours, anything could happen before a buyer gets the keys. You need full coverage, especially when you’re going through the process of selling your home.
How is Home Insurance Calculated?
The value of your home is not how home insurance is calculated. When you get the fair market value of your home you only get the price your home could sell for as a complete brick and mortar property in your current local market.
Your home insurance is calculated by how much it would cost to rebuild your property from the ground up.
Think about it like this: the cost to rebuild is however much it would cost to build your home from nothing in your neighborhood with the same level of craftsmanship and add all of the bells and whistles you put in.
That tends to be quite a bit more than what the house would sell for in its current state.
Why You Still Need to Know Your Home’s Fair Market Value
Upgrades like carrara marble counters in your kitchen, deep oak hardwood floors in the living room, a guest room add-on or a new bay window in the breakfast nook add value, which in turn raise the cost of your home insurance premium. If your home’s value went up because of additions you made, getting an estimate of your home’s value can clue you in that you need to reevaluate your home insurance.
You’ll want to talk to your real estate agent to get the most accurate home value estimate, but as a first step, you can use an online home value estimator. It only takes a few minutes to see what your home is worth, and it’s free!
How Can Real Estate Agents Help?
Dan Ihara, a top 1% real estate agent in Honolulu and an expert in single family homes, told us that “Most real estate agents are not going to get involved in insurance because they don’t have to.”
Not surprising, right?
Your real estate agent actually can help you update your home insurance before you list your house–if you know what questions to ask.
- Your real estate agent knows market conditions in your neighborhood
While not the only component (labor costs and materials also matter), market conditions are a big driving factor of the price to build in your area. Your real estate agent knows the status of prices in your area and can help you estimate the cost to rebuild–and they know whether or not you need an appraiser to come in and reevaluate the true number.
- Ask your real estate agent to set up an appointment with a home appraiser
Usually a home appraiser does not come and look at your house until the buyer signs the purchase agreement. Your real estate agent can set up a meeting with an appraiser who will come to assess the rebuild cost instead of the market value before you even put the house on the market.
The appraiser is going to give you the most accurate cost to rebuild. With that new number you can speak with your insurance company and get the coverage you need to protect your home.
In this way insurance companies and real estate agents can together help you better understand what you need to pay for homeowners insurance.
Alexa Collins is a staff writer at HomeLight. HomeLight uses transaction data to match you with the top real estate agents in your area.
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Enhanced Insurance is not written by attorneys. If you’re looking for legal advice, you need to contact a lawyer. Further, insurance practices and forms change constantly and are varied from state to state. For definitive answers in your area, contact a local agent.
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