"Chia Pet" Chia wrote in message .. .
I've been watching real estate around me with absolute astonishment. After
being evicted from our apartment last December because the landlord sold the
house, we bought a home for $51k and insured it for $75. We did alot of work
on it to make it nice. But regardless of that, real estate prices have gone
crazy and we couldn't replace our home with less than $100-125k now, less
than a year later.

The other night I had a nightmare that my house burnt down and, even after
hopefully convincing the insurance company we deserve $75k, we had $75k and
were hopelessly unable to buy a home.

The good news is I woke up and the house is fine and near a fire hydrant and
fire house. The bad news is that really is my insurance situation. The
purchase price is the insurance company's weapon against a higher claim (the
purchase price was abnormally low even then). But replacement even with a
$25k increase would definitely be impossible now.

Is there a way out of this nightmare???

So has the original poster understood what's going on? Seems simple
enough for me.

Unless the contractors in your area are all banding together in some
insane and probably illegal fashion, the cost to replace your *house*
is exactly the same as it was last year... not accounting for minor
inflation costs. Land value and the purchase price are two totally
different things.

The rising real estate prices you have seen have not been because the
cost of houses have gone up, it's because the cost of the land has
gone up. Insuance for a residential dwelling does not take the land
cost into account at all. It's all only for the physical house and
furnishings. The only bad thing about rising prices is going to be
in your taxes. if land prices have gone up then you're going to
start paying more tax.

So the cost to rebuild the house only depends on the cost of materials
and the cost of labour. Your *land* value may have dropped 50% or
risen 400% but it will still cost roughly the same to rebuild your
house on that piece of land. Building costs don't fluctuate like
purchases prices. And the 'Purchase Price' of a home also might be
totally unrelated to value. It all depends on how much people are
willing to pay.

So you are fine. I would find out how your insurance company
determines your house value though. Where i live the insurance
companies get a proper appraisal done on the house and use that to
estimate the rebuild cost. As people have said, they usually allow
rebuilding up to 125% of that to account for inflation. If your
insurance company let you choose an arbitrary value then i would worry
that they have some sort of strange policy.

Kevin