Are you selling it, paying taxes on it or insuring it? The answer will determine which one of your home's 3 values you should be using. You want one to be high, one to be low and one to be very, very accurate in case you ever need to use it. Let's look at the different values and what they mean for your home.
- Real Estate Value: This is the value that your home would sell for. Unless you're planning on selling your home (or trying to refinance), this value is irrelevant. You obviously want this value to be as high as possible but you really only need to know this value a few times during your home ownership.
- Assessor Value: This is the value your taxing entity places on your home and determines how much property tax you will pay each year. Most counties use their own formulas for determining the value of your home (plus any attached/detached structures) and then send you an annual tax bill according to the appreciation or depreciation of the value compared to the previous year.
- Insurance Value: The insurance value determines how much it would cost to rebuild if your home was totally destroyed. It is very important to make sure you review the value that your insurance company has placed on your home. You don't want it to be higher than necessary, which will cost you more in your annual premiums. However you don't want it to be lower than needed to completely replace your home. Statistics show that 60% of homes are underinsured, meaning they would not have enough insurance to completely rebuild if they were destroyed. Although the insurance value does not include the land, it is often higher than the real estate value (especially in the current environment) for a number of reasons:
- There is more involved with RE-building than with building from scratch. In most cases it actually costs more to rebuild than to build.
- You have to tear it down first! In order to start re-building you must first remove the remaining debris from the home. This is a very expensive task and can cost upwards of $25,000 or more.
- Building codes with the city, state and county can - and do - change, adding extra costs to the rebuild.
- Material and labor are constantly changing, and usually not in the same direction as the real estate market. For example, last year the price of concrete went up 5 times due to a shortage caused by the Chinese buying all of the US concrete for building projects in China.
While all 3 home values are important, only one will make sure your home is completely rebuilt if it were destroyed. Knowing each and making sure the insurance value is accurate is something that should be reviewed and kept up to date every 12-24 months. If you make any changes to your home, such as remodeling or adding rooms, make sure you meet with your agent to update the information about your home. It could mean the difference between rebuilding the home of your dreams or getting stuck with an incomplete home because you run out of insurance money!