Once again the insurance companies win by not insuring for the real construction cost. This can happen anywhere in America and will continue to happen until people understand what the real construction cost of their property is.

Six months after wildfires burned 300,000 acres and destroyed 1,350 homes in San Diego County, victims face new difficulties with real construction cost in rebuilding.

As burned-out homeowners hire architects and contractors, some are finding that their insurance settlements aren’t going to cover all the real construction costs of rebuilding.

Teresa Manley, with the San Diego Firestorm Community Recovery Team. “It’s a full-time job to rebuild. It’s not like people go to bed saying, ‘I’m going to build a house tomorrow.’ Most people won’t be able to rebuild in a year and a half.”

George Kehrer an attorney and retired contractor working with Community Assisting Recovery, a group for homeowners. He said insurance payouts are far short of the construction cost needed to rebuild in most cases. The real construction cost discrepancies range from $60,000 up to $1.4 million, he said.

“Less than 10 percent of the people are happy, and the rest are just finding out that they are underinsured,” Kehrer said. “After six months, they’re in denial that someone has concealed the facts that they’re underinsured on the real construction cost.”

Kehrer has been speaking with people. He said of the 400 cases he’s seen to date, four had payouts within $3,000 of the real construction cost and 20 people had coverage that was close when combined with other insurance payouts. The rest, or 95 percent, he said, are underinsured.

“People are coming out of the woodwork and realizing that there is a problem,” Kehrer said.

Kehrer did the same in the 2003 fires, when he handled 1,020 cases. He said in that disaster the underinsurance averaged $206,000 based on the 120 cases that were disclosed.

This time, Kehrer’s data indicates that the gap between the settlement and real construction cost of rebuilding is more than $300,000.

Kehrer said the minimum construction cost is about $190 per square foot and can go as high as $450 per square foot.

“That’s just to get the house,” he said. “That doesn’t include the interior and furniture.”

“A lot of people are convinced that there’s nothing more that they can do,” Kehrer said. “They build smaller or buy a replacement elsewhere.

The insurance companies don’t care how much you are covered for. They just want the premiums every month. They also want you to give up and go away. They don’t care that you don’t know what the real construction cost is when you sign a new insurance policy. All of those people and the people in the past disasters know what real is, and they will defiantly be asking the right questions before they sign again.

So call or email us here at Official Asset Appraisers, let us help you with the real construction cost before there is a disaster.

real construction cost

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The real construction cost activity since 2001 has brought with it the strongest rise in real construction costs since the late 1980s. In real terms, to the general rate of inflation in the economy, this period has actually been higher than the cost increases of the 1980s.

It is not surprising that real construction costs are at a very high level at a time when construction activity in Australia and other parts of the world is also running at record highs and still rising.

We expect real construction costs all over the world to surge once again over the next 12 months, as construction cost continues to climb to new record highs. Total construction costs increased by 4.2 per cent over the year to June 2007. Macro monitor is forecasting the rate of increase to accelerate to over 6 per cent in 2008. Non-residential construction costs are expected to increase by more than 7 per cent in 2008.

Looking at individual cost categories; labor costs are going to be the strongest contributors of cost increases over the next two years. Previously, materials prices were increasing more, driven in particular by increasing world metals prices. Steel, aluminum and copper are all important to construction and all experienced big price increases on world markets over the 2004 to 2007 period.

Over the past four years to June 2007, real construction costs increased by 6.5 per cent per year. In the year to June 2008, materials costs are forecast to increase by 4.4 per cent. Wages costs increased by 4.7 per cent on average over the four years to June 2007, but are now expected to increase by 7.5 per cent in the year to June 2008. Falling productivity, the increase in labor costs will be close to 12 per cent, on our forecasts.

Looking longer term, the cost in the construction sector is expected to ease considerably once the level of activity stabilizes. Our forecasts this will happen during the 2009/10 to 2011/12 period. Once the demand for labor and all of the other inputs start to fall, the relentless upward pressure on costs will be alleviated. Overall forecast to be declining in real terms by 2010/11.

What does all this mean to you the business owner that owns his own building? It should stand out to you of a prime example of the fluxuation of construction cost over even a short period of time. You need to have your building appraised on a regular basis so that you are not either paying to much or not enough insurance for your building on replacement, rebuilding or the real construction cost of your building. Official Asset appraisers can help you value your assets, contact us now.

real construction cost

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All Appraisals performed by Official asset Appraisers are thoroughly Researched, Documented, and Reported for the purpose of value under the type of value concept for the client.  This process, from start to finish, remains the Responsibility of each Appraiser, which is in line with our own internal policy of maintaining Individualized Education, Current Market Economic Awareness, and Professional Skills.It is Official asset Appraisers goal to stay ahead of providing our clients with the absolute best in service.  Therefore, we are continually in pursuant to our clients changing needs and requirements; as such, the following aspects have been incorporated into our inventory appraisal format.

·  An expanded Exit Strategy that provides more analysis of liquidation options, which is based on a comparative foundation to actual liquidations.

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