WHAT IS TITLE INSURANCE?

 Let us start at the beginning and try make this as simple as possible to understand without the legal jargon.  The two key works in this blog are TITLE and INSURANCE.

The TITLE ( aka: DEED) is the legal document that shows ownership of property.  You buy a car, you get the Title to the car.  The same is true when you buy a home you get the Title which shows you own the described property.

INSURANCE is rather straightforward.  It is a written policy by an insurer who protects you against injury or harm for the duration of the policy.

Okay, so I get that, but what does the Title Insurance do for me as the owner.  Glad you asked.

Here are a few key things Title Insurance does for you.

1. Protects you against fraud in the sale of the property.

2.Protects against unpaid utilities, judgments, liens, taxes, mortgages and Home Equity Lines.

How is this accomplished?  The Title Company does a  search of available public records for prior ownership making sure the title has passed correctly to each new owner. The Title company checks for liens, utility assessments, taxes, judgments, mortgages, HELCO, and anything related to the property.  The search will reveal any problems that might arise and need to be dealt with immediately.

Bottom Line: If you have been thinking of foregoing a title search, you may want to think twice.  Title Insurance will pay any valid claims and cover the costs of defending any attack on your title, now and in the future.

BUYING A HOME AND DOING THE RENOVATIONS

Buyer Beware!  If you are a first-time home buyer or a seasoned home buyer, you have heard this phrase at least once in your home buying experience.  

I will admit it I am an armchair fan of the TV show House Hunters Renovations. It always amazes me the way folks tour through a home and talk aloud of how they would transform various rooms, knock out walls and expand kitchens and bathrooms. 

But things change quickly as their contractor uncovers  problems after problems that hits the budget and causes delays.  What contingencies can buyers do to help offset the impact of these hidden problems lurking behind the walls of their dream home.

1. Get a home inspection.  Many people forego a home inspection in favor of a quick closing and because they do not want to lose the house.  It is best to be safe and have the report than to uncover the problems later.  

2. Realize your new home has secrets. Even new construction has its skeletons in the closet despite the best efforts of developers.  Home located by the water are most susceptible to water damage, wood rot and termites. Keep in mind that homes on wells and septic tanks need to be inspected and have the water quality assessed.

3. Hold back 10-15% of your renovation budget. Plan for the unseen and the unforeseen by holding back 10-15% of your renovation budget for emergency repair projects.  Buyers are often shocked by the sticker price of repairs and retaining a portion for those repairs can lower your renovation stress level.

4. Hire the right contractor to do the renovations.  True you may not be able to get Mike Holmes for your project but investigate local contractors and get multiple written bids for work to be done.  Check with others who have utilized the contractors, see their workmanship and learn of their commitment to the project.

Bottom Line:  Have a clearly defined scope of work to be completed.  Hire the right people to do the work.  Plan for the unseen and the unforeseen. 

HOW TO CALCULATE REPLACEMENT COST FOR YOUR HOME

There are a variety of ways to determine how much it would cost to rebuild your house and obtaining a more accurate estimate will take a little more effort on your part.  The replace cost value set on your house by the insurance companies is an "estimate" and not an actual dollar for dollar value.

Considering the need to appropriately value a house for insurance purposes, every homeowner should use at least one of these resources to determine an accurate home insurance replacement value.  HINT: When you insure your home for the more accurate value, your rate will reflect the increase.

Four Methods to Calculate Replacement Cost:

1. An insurer appraisal - many insurers rely on third-party technology to estimate the RVC of homes it insures. The analytical tools calculate the replacement costs based on inputs by you or by construction cost sourced by the developer of the tool.  This is an easy, but method, but not as dependable as an in-person appraisal.

2. Online Replacement Cost Calculator - like the insurer appraisal, their replacement costs data is not guaranteed to be an accurate reflection of construction costs in your location.   This tool does provide you a "second opinion" for comparison purposes.

3. Professional appraiser - the most expensive, but most likely to yield the most accurate results.  The professional appraiser will examine all the data through an in-person inspection.

4. DIY math - the most time consuming since you are collecting all the data and research replacement cost data on your own.  It is a free educational experience but requires sourcing pricing from a variety of vendors such as roofing, flooring, fixtures, siding materials and more.

Regardless of the method you use to calculate the replacement cost of your house all estimates will be based on the following factors: age of the home, square footage, house style & shape, features and finishes, and home fixtures.

 

UNDERSTANDING REPLACEMENT COST FOR HOMEOWNERS INSURANCE

About two out of every three homes in the United States are underinsured.  That is a dramatic statement, but it is true simply because homeowners underestimate the replacement cost for their home.

What is replacement cost?

Replacement cost is the estimate of rebuilding a new home that is of like and kind quality to your home.  Factors influencing replacement cost include: construction costs, square footage, the quality of materials used to build the home and home features.

Knowing the replacement cost of your home is important because it will assist you in selecting appropriate limits for your dwelling coverage.

One cannot be certain your homeowner insurance fully covers you unless your limits are set at or above the replacement cost of your dwelling.

Replacement cost calculations are not a guarantee.

While homeowners seek the best possible cost to rebuild their home, they have no guarantee it will be ultimately accurate.  In the event of a natural disaster, such as a hurricane, which impacts everyone in your region, the costs to rebuild a home may be far high than an initial estimate. 

Two options

Insurance companies do offer options to expand protection and create a buffer against rising costs, both of which are more expensive than typical a replacement cost policy.

1. Extended replacement coverage - covers you up to a certain percentage above your dwelling limit.

2. Guaranteed replacement cost policy - will reimburse you the full cost to rebuild your home, no matter the cost.  This coverage may not be available in every state.

Next week we will discuss - how to calculate the replacement cost of your home.  Look forward to seeing you then.