Electrical Fire in my Home...how do I deal with upgrades through insurance?

Question

Background:

About 3 weeks ago, I had a fire in my home. I had been renting it out but tenant moved on and I moved in. No one was hurt (thank God). In any event, I had an electrical fire start in the wall while I was away. When I came back, I had pretty much lost everything. Thankfully, there was nothing there that was sentimental (other than the house). Fire marshall and insurance deemed it to be an accidental fire. The insurance adjuster was contacted same day and I was given a check immediately (a few days) so I can find an apartment. I am now in the process of dealing with general contractors to rebuild the house. (It was not deemed a total loss; the structure was considered sound.)

Now here comes my questions:

I understand that insurance will only replace and fix what was already there. I get that. However, before my house suffered its fate, I was severely underwater. Going forward, I am trying to find a contractor that will "work with me" on getting my house to the value that meets or (ideally) exceeds my mortgage. The additions I want I don't think are unreasonable. The roof has to be replaced and the house needs to be reframed so if they are doing that, I figure the roof can be raised a good few feet so I can have cathedral ceilings in the living room. I want to abolish the back porch that egresses from my "master bedroom" and put in its place a master bathroom and closet and make a hallway that leads to a rear egress and the bedroom. Plus a couple of structural changes to the kitchen (make it bigger) and have a HVAC system that will be placed in the attic (instead of the baseboard system). Plus other new-construction niceties like coaxial and Cat-6 jacks. I had high-hats in the house, so recessed lighting won't be new to the home. The numbers I have thus far seem to be well within my dwelling coverage, and even after the franchise-chain folks that did the gutting and cleaning of the house have left my house.

How much of a fight will I have for insurance and are there contractors that will "work with me" on pricing? I haven't gotten a adjuster's report as of yet (I will be going to my PO Box first thing Monday). What other things do I need to consider? I do have funds that I can allocate to the home, but I'm hoping to have most if not all of it come from insurance. I am sure I'm not the first or last homeowner in this situation. I just want to make sure that my 1-story ranch in NJ will see increased value when whoever does the work is done and I'm not so underwater (or not at all).

If I sounded like I was rambling, I apologize...I'm just at my wits end to figure out what to do. I appreciate any and all help. :)

Joel Owens · Answer

Yeah if the insurance company is going to pay the bank then try to fight the loss value to get the insurance check as high as possible.

This way you payoff as much of the mortgage as possible.

I am not saying fraud or anything of the like.What I am saying is insurance companies always low-ball the first claim payout. Think if nobody fights the value how much money they are saving to offset fraudsters out there that got one over on them.

So usually the first offer by insurance isn't their best offer.

You might find you don't even want this house and take the check proceeds.

Many in New Orleans took the check proceeds and told the bank they could have the properties.

You have the law which is mostly black and white with a little of a gray area and then you have ethics and integrity which is subjective and open to individual interpretation.

So look at your options but law and make a choice.I would check the contractors work and references before handing any money over but that is a whole other topic.

Account Closed · Answer

No reason that you can't make improvements and changes. For one the city is going to require that it be built to current codes which your older home, I'm sure was not. Even if the house was built very similarly to what was there before it would have a greater value because the home would be essentially brand new with no depreciation.

Cruz G. · Answer

Thank you, and I probably didn't ask the question right anyhow so that might have led to confusion. :) It is my hope that things will work themselves out in the weeks and months ahead and will be above board. It's just been a bit rough, but I will hopefully manage.

Thank you once again and no worries.

Bryan Hancock · Answer

No worries...perhaps we both misread your post or intent. Good luck to you.

Marc Freislinger · Answer

I doubt you'll find many people here who will encourage insurance fraud on a public forum.

Your best bet will be to discuss your needs with the contractor. Let him know how much you're able to contribute, and see if it will be enough to do the things your asking. Some of your items seem to be expensive, such as reshaping a roof and adding a bathroom.

Also, keep in mind that a bedroom needs two methods of egress, so you may have issues with taking out an exterior door.

Hopefully it works out for you though, I recently had an incident at an apartment that gave me reason to do some remodel work too.

Timothy W. · Answer

Here's how you do it. It's very simple.

You get an estimate of repairs from the insurance adjuster for the cost of repairs. Next you go to your contractor and get the cost of repairs with the upgrades you want. Once he does an estimate of the repairs with the upgrades you want, compare it to the estimate you got from the adjuster. You will be responsible for the difference between the two estimates. If you think the difference between the two estimates is an unreasonable difference then perhaps the adjuster's estimate was low and you present the scope of work that the adjuster has to you contractor to get an estimate for that portion only. If his estimate on repairs only, without upgrades, exceeds the adjuster's estimate - attempt to get the adjuster to accept the contractor's estimate as an "Agreed Price" for repairs.

You will get and Actual Cash Value check at this point for the cost of repairs less depreciation and your deductible.

When the work is complete, you present proof that the repairs are complete and possibly proof of your final costs to get your recoverable depreciation (assuming you have an RCV policy).

Any questions?

Bill Gulley · Answer

Marc, I wasn't addressing the fluff issue at all, the bid will have little to do with what the Insurance company will pay out. If you want the best body shop in town to do it, fine, but they will pay the lowest qualified bid,after they make a lower initial offer.

Right now, I have a claim moving slowly on my cabin at the lake that was blown off a week ago. Just have to play the game!

Cruz G. · Answer

I'll be doing the latter option.

I do have capital to perform minor upgrades if/when I need to tap into it. This has been discussed with both of my contractors and if/when I'm going this route, I'll be doing that.

Account Closed · Answer

It seems to me that you really have two choices here. Take a settlement for what you negotiate the replacement cost should be and do more of what you want. The other choice would be to build a similar home that is up to current codes and have the insurance fully pay for it.

Cruz G. · Answer

Same here with 100% coverage. My whole thing was my town is very strict on code and since the whole house is going to need to be done up on code (and that's really my #1 priority...I never want to go through a fire again), I want to make sure even that everything is done properly on code the first time with the rebuild. That's why it was important for me to deal with licensed contractors who have gone through the process in my town.

Electrical Fire in my Home...how do I deal with upgrades through insurance?

Electrical Fire in my Home...how do I deal with upgrades through insurance?

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