Reconstruction Cost versus New Construction
We regularly get asked about the valuation of properties and how we come up with an estimation of the reconstruction cost of a property in the event of a total loss. Most insurance companies have a cost estimator tool that is used as a guide. Marshall & Swift/Boeckh (MSB) is a popular cost estimator choice among companies. It is important to remember though that these estimators are only guides to help determine minimum property values and the final decision of insurance coverage lies with the insured and the company.
Why Reconstruction Usually Costs More Than New Construction
Economy of Scale
When a contractor has many homes under construction at once, materials can be purchased in large quantities which in turn allows for price discounts. This factor alone can push the cost of rebuilding thousands of dollars higher than the cost of comparable new construction.
Top Down vs Bottom Up
New construction begins at the foundation and builds upward. Repairing a house that isnʼt totally destroyed often means rebuilding from the top down, a far more time consuming and labor-intensive procedure.
Demolition and Debris Removal
New home construction normally begins on open ground. Rebuilding may begin with a partially or totally destroyed structure on the building site. Parts of the structure may still be standing but unusable, requiring demolition and removal. A lot of work is usually required before the first cement can be poured or the first nail hammered.
Use of Labor
When a new home builder has several houses under construction, work can be scheduled for the most efficient use of carpenters, plumbers, electricians, and other workers. When only one home is being built, the same kind of efficient scheduling is rarely possible. Labor normally accounts for the largest share of home building costs.
Access to the Worksite
When new houses are under construction, there is usually no landscaping, which allows for easy access to the site. Materials can be driven directly up to any side of a structure as needed. When a house is being rebuilt, there are trees, shrubs, lawns, flower beds, fences and other obstructions limiting access. Materials may have to be off loaded further away and hand carried to where they are needed, thus increasing labor costs.
Building Code Changes
Most older homes and many newer homes were built during times when building codes were less strict than they are today. If you are rebuilding your home you may need to meet the newer and stricter building codes. Building code changes can add thousands of dollars to the cost of rebuilding.
Construction Costs Rise After Natural Disasters
In the wake of a natural disaster affecting a wide area, the costs of building materials and contractor fees nearly always rise sharply in response to the sudden surge in demand.
These are just some of the reasons that reconstruction costs can be higher than new construction. Research shows that the actual cost to reconstruct a building after a total loss is on average greater than new construction cost.
Have questions? Contact our office today!
Posted on Tue, July 6, 2010
by Scott Wiedemann