House burned down - what to expect next
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Contractor · La Mirada, CA · Member since 2015 · 66 posts · 48 votes
8yYou need to have a restoration contractor give you an estimate because the insurance adjuster is going to lowball the heck out of that number. Most of them will do that for you for free hoping that they get the job.
You can take the cash value amount, you will not get the recoverable depreciation but you could just sell the house/land to some other investor and walk away. If the fire was bad enough you will probably get more money then you paid for the house. Here in California on a 1200 square-foot house it’s almost impossible to have a “good fire” (that’s what we call it) that is less than $100K in damages if it’s a complete gut to the studs, with even minimal structural damage would be over $100k.
41 Replies
- Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes8y
@David K. -I had a similar situation with a house I owned for less than a year. I have a cash value policy because rebuilding it would cost way more than what I bought it for. Sounds like your property is similar. I choose not to rebuild, so I had to pay to have the property razed and all utilities cut of to the property. So now it is vacant land and a neighbor wants to buy it for $1
It has been awhile but I think the cost to raze it was $10k
My original quote came in at a value that I would have lost money, so I hired a public adjuster to handle the negotiations and he got me 50% more than the adjuster originally offered. My city withheld 50% of the insurance payout until I properly demolished the property. My fire was in March and by the time it was all done it was September.
Second City Real Estate4.821 Reviews - Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes8y
Originally posted by @James W.:
I don't have experience working with insurance on something like this, but I don't think they will be able to give you more or less depending on if you plan to rebuild or not. If they were to force you into rebuilding for some reason, it might be your best path, but I am thinking it is more likely they will cut you a check and you will be better off taking the money to buy something else.
Until you get the check, it is all speculation now though.
If you have a replacement cost policy, they absolutely will give you more if you rebuild than if you do not. I've now been through this multiple times. Even with a replacement costs policy, you will only get the actual cash value if you choose not to rebuild. The actual cash value represents your actual loss. A replacement cost policy goes beyond that and gives you additional money to rebuild the property, but only if you actually do rebuild. You only get that additional amount, the difference between the replacement cost and the actual cash value, if you rebuild. Strictly speaking, the company won't give you that money until you've rebuilt. In practice, on the claims I've done, they will hand over the additional amount once you have a signed contract to do the work.
- 8yDavid K.Rental Property Investor · Plainview, NY · Member since 2015 · 123 posts · 28 votesOP
I think the decision whether I need to rebuild or walk will also depend on the amount of work.
For now, I have been getting mixed opinions on the extend of the restoration - it sounds like the outside, the structure overall is ok. But on the inside everything would have to be gutted and replaced; the structural beams seem to be solid but everything would have to be treated with something to alleviate the smoke damage.
Still waiting for a quote from the contractor
- Specialist · Paradise Valley, AZ · Member since 2018 · 3k+ posts · 2k+ votes8y
Originally posted by @David K.:
@Jason White, I can only dream of the scenario where i recoup more money than I had paid for the house in the first place - that would be an easy resolution for me - just get the money; sell to another investor as-is and walk away. I am going to get a contractor inspect the property ASAP - thanks for the tip!
I imagine that restoring a house from fire/water/smoke damage is not that trivial and then finding an investor that would be willing to buy an "after-fire" asset will not be easy as well.
@Sam Shueh, I hope you are wrong re the insurance :) I have been dealing only with one ins company for all my investments and hopefully they will see the value to continue doing business with me
It's unlikely that your paid premiums have exceeded the amount the insurance company is now going to have to pay you. They don't like you, they don't dislike you. They just don't want to pay you money. They have to pay of course, but that isn't why they are in business. (Supreme Court ruling) They are in business to make money. They will pay the least they can get away with. It is all Negotiable. A friend of mine had a kitchen fire which put his house in the same condition. No one was hurt. It took about a year and a half to come to an agreement on how much was owed.
Insurance companies keep a national database on homes and individuals regarding their claims. Congratulations, you and the house are both in that database now. Yes, that will raise your rates for your Other Properties insurances even though they were not affected. The house in question will be affected even when rebuilt and has a new buyer. Computers are amazing. They don't seem to forget much and they calculate loss and probability pretty quickly. By the way, even small claims have a major impact. One should never file a claim if it is less than the deductible. Simply *calling* to inquire about a possible claim on a loss before filing goes into the system, and even if the amount is less than the deductible, it will be counted against you and your policy costs can be adjusted up.
This information came for a "loss prevention and mitigation" class I attended with one of the major insurance carriers for investment properties. You should feel free to ask your insurance broker these questions and take the best actions to protect your interests. The Insurance Broker IS on your side. The Insurance Company is most certainly NOT on your side.
- Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes8y
@David K. I had a kitchen fire and more damage was caused by the fire department than the fire. Not only water, but axes to bust the walls open to make sure the water gets all the fire. I hired a fire restoration company that was a one stop shop for providing an estimate, clean up and repair. I ended up with a remodeled kitchen and pretty much nothing out of pocket, because I did the cabinets and painting myself.
The smoke gets on everything in the entire house. Everything needs to be wiped down.
In my case the restoration company estimated more than the insurance company, but they have a good working relationship, so they accepted the difference without question. My property was so crappy to begin with that replacement cost was an upgrade in all regards.
The day of the fire was pure hell for me, but dealing with insurance and rehab was pretty painless. Hopefully that offers you some hope.
- Contractor · La Mirada, CA · Member since 2015 · 66 posts · 48 votes8y
@David K., @Jon Holdman is mostly right. Me tell you a story of a lady named Jessica in Glendora California. She had a outlet in the back bedroom of her three-bedroom house short and caught the mattress on fire. We call this kind of fire a “smoker”, not a lot of structural damage but a lot of damage because of smoke. The insurance adjuster came out and gave her an estimate for a little over $50,000 to repair her house. She thought something seemed off on that number so she hired us to represent her for rebuilding the structure. I did an estimate and my estimate was a little over $160,000 for “the same scope of work”. So what happened next is we schedule a re-walk with the insurance adjuster and he brings his own contractor consultant and we re-walk the loss. Long story short we ended up settling at right about $150,000 for that fire. Both of us were using xactamate, both of us saw the same house, and the same fire, but one of us wanted to clean everything and the other wanted to replace the smoke damaged stuff. This story is not the exception, it’s very common. But the numbers aren’t usually that far off. Probably 25% to 50% off normally. So if you don’t know what you’re looking at or you don’t have somebody representing your best interest you will be taken advantage of.
The insurance adjuster is just that, their job is to adjust the loss based on the policy written. They are not contractors, but they will try to sound like one to make you trust them that they know what they’re talking about. One thing you need to remember the whole time is that you are in charge of everything they can’t tell you who to use or what do use your money on. They’re going to want you to use one of their preferred contractors, which is just going to be a yes-man to the adjuster because he wants that steady flow of business to come in. For example if at a walk through the insurance adjuster asked him “do you think these cabinets can be cleaned instead of replaced?” He will just say yeah we can clean those. But in reality they really should be replaced to get you back to pre-loss condition.
OK sorry for the long response I’m just passionate about this. Please feel free to ask any questions you might have.
- 8yDavid K.Rental Property Investor · Plainview, NY · Member since 2015 · 123 posts · 28 votesOP
this is so so helpful @Jason White, @Joe Splitrock, @Account Closed
I am really new at the whole RE business, not to mention the fire, and the fact that I am thousand miles away does not help either.
I thought that I am at the insurance/ adjuster's mercy, but now I know that i can actually try fighting their decision if needed.
- Santa Rosa, CA · Member since 2017 · 325 posts · 701 votes8y
Here in Santa Rosa we just had a terrible fire that destroyed many houses so all the ins and outs are being broadcast and published. I was not impacted, but I know a lot of people going through this. 2 things..
1. This site has a lot of information, some California specific, but worth skimming at least. The organization is (as best I can tell ) a non-profit run by lawyers that sue insurance companies so they are biased to the homeowner, which for you is good.
https://www.uphelp.org/blog/north-bay-fires-insura...
2. One takeaway I got was on debris removal.
https://www.uphelp.org/library/resource/debris-rem...
The insurance company will give you an extra ~10% to remove the debris. That way when you go to sell the land (if that is what you are doing) it will be a clear buildable lot. It does not take away from the insured amount, it is extra, so dont leave that on the table.
Good Luck
- Real Estate Agent · Houston, TX · Member since 2017 · 159 posts · 161 votes8y
Originally posted by @David K.:
@Greg H., the house is in Lufkin, TX.
I have no idea where or what Lufkin is to be totally honest with you. This is obviously a small town but the sale prices range a great deal for a small community to my surprise. Based on the purchase price and rent, I have been assuming that this must be C type of area. Purchase was 54k, rent was 700. But only within a 2-mile radius there are plenty of 100k+ houses that are also all rentals.
I am just afraid that they won't give me that much bc technically the house is still standing - only the back of it was impacted by the fire. The firemen came from the front and damaged the rest of the house with water. And the smoke obviously did its own damage. So according to my PM, the house is totally uninhabitable, but that may not be what the insurance assesses.
I can't tell you much about the insurance portion but I know exactly where Lufkin is located. Definitely a small industrial town in east TX 250 miles north of Houston. Not sure what part of Lufkin it's in, but the numbers sound pretty solid
- Rental Property Investor · Austin, TX · Member since 2015 · 280 posts · 176 votes8y
@David K. The most likely scenario is that the insurance company will pay out according to the terms in the contract. If you paid $54k cash and your insurance covers $94k in replacement value, you *should* be able to collect the $94k as well as the $8k in lost rental income and either rebuild or simply sell as is and let the Market figure out how much it is worth. You may end up selling it for only lot value. You will likely end up with more in your pocket if you go this route since rebuilding can get costly.
- 8yDavid K.Rental Property Investor · Plainview, NY · Member since 2015 · 123 posts · 28 votesOP
@Account Closed, that would be the best possible scenario, the one I could only dream off. Making 40% profit on the investment just after 4 months of owning it would be a "solid" investment strategy in my book :)
- Investor · Atlanta, GA · Member since 2013 · 3k+ posts · 3k+ votes8y
If I were you, I'd change my last name on my profile to only the first letter now. these posts show up on google and in case the insurance googles you, you really don't want this post to appear.
Just googled you and your BP profile shows up and this is the first post mentioned in your profile.
Originally posted by @David K.:@Account Closed, that would be the best possible scenario, the one I could only dream off. Making 40% profit on the investment just after 4 months of owning it would be a "solid" investment strategy in my book :)
- 8yDavid K.Rental Property Investor · Plainview, NY · Member since 2015 · 123 posts · 28 votesOP
@Michaela G. I doubt insurance company, as part of their adjustment and reimbursement process, would employ a workflow where one must google/ fb personal accounts and then base their decisions on that. That to me sounds far fetched, but maybe I should remove my post just in case
- Saint Joseph, MI · Member since 2018 · 18 posts · 27 votes8y
At different times I bought a SFH and a Duplex that had caught fire. I gutted them out and rehabbed them. Sold the home and made a profit. I kept the duplex and ended up with a mostly new rental for about half the market cost. I am a licensed contractor so that helped my situation. Granted there are many variables, but there could be a market for selling your property.
- Investor · Atlanta, GA · Member since 2013 · 3k+ posts · 3k+ votes8y
You may think that it's paranoid, but as a real estate investor with an unusual name, you will have buyers and sellers and tenants google you, just to see if there are any hot buttons or red flags or whatever. What if you're ever a defendant in a lawsuit? And what if they'd bring out that one post, out of context, and tell the judge 'see, he has a history of scamming people..' or something.
You don't want this floating around in cyberspace.
Originally posted by @David K.:
@Michaela G. I doubt insurance company, as part of their adjustment and reimbursement process, would employ a workflow where one must google/ fb personal accounts and then base their decisions on that. That to me sounds far fetched, but maybe I should remove my post just in case
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