Welcome to “At Home With Tom & Sandy.” As we always are, Tom and I are happy and enthusiastic and maybe a little wound-up from time to time but always ready to give you the inside scoop, what’s up, what’s down and what’s hot and what’s not and, in some cases, information that is just straightforward and as homeowners you should be aware.
Sandy: Here we are again Mr. R., and I know this will shock and surprise you, but I have something I think we need to talk about.
Tom: Well that is a shocker, Ms. G. Pray tell us what this month’s topic will be!
Sandy:Square foot costs. I receive numerous calls from homeowners asking the cost per square foot, mostly for their homes.
Tom: Great topic, Sandy. Renovations also receives calls from folks wanting to know the costs of everything from a new home to a master bath remodel. Square footage numbers can be misleading, though.
Sandy: We see so many variables with those types of numbers throughout the industry. Since their use is so widespread, Tom, explain to our readers why they can be misleading.
Tom: Let’s first look at what they mean, and how they are developed. Square footage costs are a ratio of the total cost of a project, or portion of a project compared to the size of that project. The dollars over the length and width of something built. Given that, how that project is built, the materials used, the finishes installed, and the quality of products utilized, all play a part in determining the cost. Because these factors can vary widely from project to project, the ratio of cost to size can be misleading.
Sandy: Very nicely said, Tom. And that certainly makes sense. One category of a square foot price phone call that I receive most often is from homeowners who want to know things like the replacement value of there house, typically for insurance purposes. They all want to know what the square footage cost is to rebuild. I thought it would be beneficial and valuable to “phone a friend” and invite a terrific insurance guy into our column conversation. Readers, meet Eric Strobel of Eric Strobel State Farm Agency. Hey Eric, welcome to At Home with Tom and Sandy!
Eric: Hi, Sandy and Tom. I read your column every month and am delighted to be your “phone a friend” and a part of this month’s column.
Tom: That is very cool. And Eric, you know Sandy, she is going to put you to work right away.
Sandy: Tom you make me sound menacing! But you are right. So, Eric, when people call me asking about the replacement value of their home by square foot costs, what should I tell them, because that is not a number that is readily available and one-size-fits-all.
Eric: Great question. The insurance industry does have a fairly standardized process we take folks through to calculate the replacement value of their home. The key is the process.
Sandy: Okay. Good stuff. Tell us all about the process and what the key is.
Eric: We utilize an in-depth interview process with pre-prepared questions designed to learn about each individual home and its unique value. As Tom mentioned earlier, the type, quantity and quality of products used in a home play a large roll in calculating the accurate cost of each home.
Sandy: Makes sense. What kind of questions do you ask? Can you give us some examples?
Eric: Sure. The goal is to get detailed information about the home. We ask questions like, “Is your roof tile or asphalt shingle?” “What are your kitchen counters made from: laminate, granite, another solid surface product?” The answers to these detailed questions are entered into what we call the 360 calculator. Once all the data is inserted, the program will give us a cost in dollars per square foot. Each agent reviews it and adds to that number as they interpret local circumstances.
Sandy: Interesting. So, each home is a little different. My next-door neighbor’s replacement costs may be different from mine.
Eric: Might be. Usually in a subdivision/track development the replacement costs don’t vary significantly.
Sandy: What if homeowners don’t know the answers to your questions?
Eric: We rely on the internet to try and gather relevant data. We used to go out and inspect primary homes, but State Farm only does that now in a random fashion. This helps in making sure our data pool is as accurate as can be.
Tom: Interesting process. This does support the unique value of each project as it relates to square footage costs.
Eric:Tom, you are 100 percent correct. The value assigned is unique to each home.
Sandy:I presume you use this data to determine insurance costs.
Eric: Absolutely. Insurance costs are only as good as the information we get.
Tom: Hopefully folks can see that square footage costs, without detailed, accurate information, are not really helpful.
Sandy: I think you both described the process of developing square foot cost is a subjective one, and as such can be misleading.
Tom:Sandy, back to the all-too-common question that you receive, “What is the price per square foot to rebuild?” Let’s remind our readers that the condition of a home, everything from the roof to the plumbing, to the heating system and electrical wiring, and as we said earlier all of the upgrades and material in the home are factored in this square foot price.
Eric:It is important for homeowners to know that rebuilding a home after a property loss can restore a home to like new condition. However, rebuilding can cost more than the value of your home or even more than a new construction. This is often the case when home values have declined but the cost of materials and labor has risen. This is why it is extremely important to review policy coverage yearly to calculate the cost to rebuild a home before damage strikes. This allows the homeowner to purchase enough insurance coverage to reconstruct their home to its original state if a total loss has occurred.
Tom:Eric, I have learned from you that when buying home insurance, one of the most important things to know is the replacement cost of your home and, as we discussed in our column, the replacement cost is how much it would take to rebuild your home with similar materials if it is damaged or destroyed.
Eric:Insurance can be very confusing. It is important for homeowners to choose a “dwelling coverage” amount when they are shopping for a policy. They should select a dwelling coverage amount that best matches the replacement cost of your home. The cost to repair damage to your home or rebuild it completely at equal quality — at current prices – is the replacement cost.
Sandy:Eric, I am sure that homeowners to not want to have an inaccurate replacement cost, as it’s tied to how much dwelling coverage they purchase, and they can be at risk for being underinsured.
Eric:Sandy, this is a very common oversight that I see often. Many homeowners are underinsured.
Sandy:Here is my take on today’s insurance lesson: figuring out an accurate replacement cost can be a challenging task. Replacement cost is the amount a homeowner will need to rebuild the home if it is damaged or destroyed, which is not the home’s market value. Replacement cost offers more protection because the cost of building a home often exceeds its market value.
Tom:And let’s not forget building codes. This mainly affects older homes as well. While homeowners are usually not required to upgrade their homes every time the building codes change, if your home is destroyed and needs to be rebuilt, the current building codes will apply.
Tom:The takeaway here is that insurance is important and it is a good idea to have your home insured with a local insurance agent that knows our area, knows the conditions of our area and is knowledgeable about our resources and the community.
Sandy: Eric, thanks so much for stopping by to visit with Tom and me and our readers. Insurance is not one-size-fits-all. And for our readers that need a “life line” to insurance and/or want to “phone our friend” Eric, he can be reached at Eric Strobel, Agent, State Farm 928-772-8338.
Tom:As always, thanks to our readers for stopping by and reading “At Home with Tom and Sandy.” You’re in good company and we love sharing our column with you. Always love hearing from the community. Enjoy November! QCBN
By Sandy Griffis and Tom Reilly
Tom Reilly, architect, contractor, Renovations 928-445-8506 renovationsaz.com
Sandy Griffis, executive director, Yavapai County Contractors Association. 928-778-0040. firstname.lastname@example.org