Home insurance is designed to put the investor-owner back where he or she was before a storm or a fire turns a great rental property into a pile of ashes and debris. Remember, the correct insurance amount must be enough to rebuild the home in case of a severe or total loss. We are talking about construction costs here. . . not ‘sales price’ or ‘market value.’ These days, in Arizona, BOTH construction cost and ‘selling price’ or ‘market value’ are moving upwards rapidly.
For the past year, our minds have been on serious life issues like the Coronavirus, and many of us have temporarily forgotten about the massive fires that destroyed so many homes in California, Oregon, and Washington state. With every home that must be re-built, there comes a little bit more pressure on construction costs and materials.
Large numbers of trades people from Arizona have gone to the Coast where wages are higher and overtime is plentiful. This is like the Alaska pipeline construction over 30 years ago, or North Dakota fracking 10 years ago. But a big difference is that with home construction, building materials have been hit hard, prices are up and availability is down.
Lumber for home construction that cost a builder $5,000 only six months ago, is now costing $15,000 or more. This is a function of both unexpected demand as well as increased trade tariffs with Canada on lumber. Piping, electrical wiring, and roofing materials are all impacted. Plus, shortages on appliances are forecast to last into at least 2022. Home builders are confirming their orders for dishwashers, ovens, cook-tops, and garbage disposals 12 months before they expect to need those items. The entire appliance category has felt the pinch from pandemic related supply problems and strong demand that was not anticipated. In the dishwasher field for example, demand for high-end brands like Bosch and Kitchen-Aid have resulted in delivery delays of 4 to 6 months or more. And when a builder or contractor learns he can’t get that high-end brand, but they must have a dishwasher, they order a Maytag, Whirlpool, GE, or LG. The result is pressure on the entire industry and shortages of almost all makes and models.
“How does all of that impact me?” you ask. The answer is that there is a good chance that the insurance policy you have for your rental property may not include enough dollars in today’s market to do the job if something bad happens. This is a good place for a reminder that the insurance policy does not guarantee to re-build or replace your rental property without limits. There is always a maximum pay-out. So even on a policy that says ‘Replacement Cost’, there is a maximum number of dollars that the insurance company will spend.
Solution: Now is the time to call your rental property insurance agent and ask to have your “Buildings” amount re calculated based upon today’s costs. Yes, it can raise your insurance cost, but if you increase your deductible at the same time, that can ‘soften the blow.’
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CLARK SANCHEZ is a 40+ year Arizona insurance agent specializing in rental houses. He has been a Vendor-Affiliate with AZREIA for over 18 years and can be reached at: (602) 803-2179 or at firstname.lastname@example.org