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The Cost of Reconstruction

In light of mother nature’s events in the past years, there has been an increase in insurance claims that call for reconstruction.

First, it’s important that we understand reconstruction costs and how it differs from replacement cost.

Replacement costs: costs to replace entire building with equal quality and construction. Does not include cost associated with construction process. Usually will rebuild with similar/same material and layout.

Reconstruction costs: cost to replicate building at current construction prices, using like kind and quality materials. Demolition, debris removal costs, etc., create a valuation higher than just a new construction, or replacement. Specifically covers structural damage from loss.

However, these costs might not be in line with the market value of your home.

2017 was filled with floods, hurricanes and wildfires that not only caused the need for reconstruction, but also result in material and labor shortages.

As the economy grows and unemployment lowers, wages go up and so do prices. As a result, construction costs are rising, and material cost increases are the highest in over 5 years.

This is to remind you that sufficient coverage for reconstruction costs is needed and sometimes needs to be higher than the current market value of your home or business office.

  Producer Price Index of Materials Inputs to Construction.  Changes in
PPI Input costs at the producer level may not reflect changes in actual
pricing to contractors.

While the PPI does not reflect the market directly, there is an obvious correlation.  According to Cincinnati insurance, labor, fuel, lumber, asphalt, steel, glass, concrete and gypsum increased from November 2016 – November 2017. The average increase across all materials was 7.7%.