Rebuild cost vs property value

Is it common to see large differentials in residential policies between the rebuild value and the property value? A relative has a century old Manhattan brownstone and is seeing a 2.5x multiple between the 2.

For a “lick it and stick it” cookie cutter house? You’ll probably still see a difference, but more like a factor of 1.5. For something with customization? Yeah, 2.5 isn’t a surprise. My house would probably sell for around $300K, with everything it has to rebuild from scratch + bring stuff up to modern standards would be at least twice that and maybe 3x depending on whether there was demand surge at the time.

SG, silly question… which of the two is higher? When there’s a discrepancy, it usually means the replacement cost is way higher than the market value of the property. Is the land so valuable in Manhattan that the replacement cost is lower than the market value? It seems odd to me that there would be unusually high construction costs in a major city.

Yes, it is actually pretty common. It generally applies when the house is old and run down and the market value decreases toward the value of the land the house sits on. This is pretty common in rural America.

I’m a little surprised to hear about one in Manhattan (NY right? Not Manhattan Kansas?)

There are special insurance policies that apply to such houses. These are usually called Dwelling Fire policies and offer less coverage than a traditional HO policy. Or there’s a restrictive HO policy called an HO-8 policy that offers more restrictive coverage than a regular HO (HO-3) policy. The restrictive coverages are more likely to be ACV amounts than replacement cost amounts.

Yay, Wildcats!

Manhattan, NY. 10M replacement vs 4M value or something like that. I was guessing that construction costs in NYC and the age of the building (and the fact it touches other buildings) might be an issue. I don’t think it is particularly run down. Not sure when it was last renoed.

Only comment the independent agent gave my relative was it was common for the particular insurer to do this. I told my relative that if it was a particular company trying to get rid of the contract by making it price-uncompetitive the agent should be able to help him determine alternatives.

Wow. Ok.

There are specialist insurers that work primarily with High Net Worth insurance buyers, and I presume the owner of a 4M house is in that group.

I guess that kind of building could be very costly to replace. But no one is served by allowing someone to buy a house at much cheaper than replacement cost and then allowing replacement cost coverage. That would invite moral hazard.

Shopping around, IMHO, is the best way to tell if the buyer is getting a fair shake from the insurance company.