New Year’s resolutions for homeowners: Update your valuation

As real estate insurance policyholders approach 2015, they might consider updating their coverage to reflect changes in a home's valuation. Real estate prices in your neighborhood may be up or down, but that has little effect on what it will cost an insurance provider to restore your home in the event of damage:

  • Market value: the price a potential buyer would pay for your home in a transaction, including the land and other features
  • Replacement cost: the cost of reconstructing or fixing your home in the event of a claim

While much of market value can be based on the structural features of a home, other factors contribute to that figure. That number changes based on trends and buyer interest, depending on how sleepy or competitive your local marketplace is at any point in time. What replacement cost valuations take into account is very different: an objective assessment of the cost to rebuild the home should something catastrophic occur. 

Without realizing it, you may have boosted or diminished the value of your home significantly enough to warrant a revised insurance policy. From updates to utility mechanisms to the effects of age on old features, your home might cost more or less to replace than it did when you established your coverage with a homeowners' insurance provider. For that reason, many agents will advise clients to reappraise their homes to ensure they're not paying too much or too little.

In the new year, exploring options for reassessment can help in two ways. First, it can uncover weak spots where your current coverage may be insufficient to provide an adequate replacement. Second, it can save you money if you're currently covered for more than the actual value of your home. Making these adjustments at the start of 2015 can help you understand where your policy stands and whether it needs an update.