The Porter- Brandenburg Agency has already written more builders risk policies during the first seven months of 2017 than we did in all of 2016. Our insurance agency loves to write builders risk insurance and work with people who are building their dream home or those wanting to remodel the home that they presently live in.
But the biggest source of new business for us are residential remodelers who are often referred to as “fixer-uppers”. There seems to be an increasing number of entrepreneurs who are buying property and restoring and selling the property for a profit. Banks readily loan money for these projects and there is demand for the finished home. Most people prefer to buy a home that is “move-in ready.”
Builders risk insurance is our preferred method of covering homes and other buildings during the course of construction. This is certainly true for homes and other buildings built from the ground up, but it also true for remodeled property. The builders risk policy is flexible enough to cover the addition only or the existing property plus the remodeling costs.
How do you select the amount of insurance on a builders risk policy?
If it is a new property, this is easy. You should insure at the cost of labor and materials to build. After you obtain all of your estimates from the different tradesmen, add them up and insure at that value plus profit and soft costs. You should adjust insurance value if costs increase.
Most insurance companies who write builders risk policies value the existing structure on an actual cash value (ACV) basis. ACV is defined as replacement cost less depreciation. One does not include the land because the dirt will still be there even if the home is totally destroyed in a fire or tornado. The total insurance value should be ACV for existing structure plus cost of remodeling + profit + soft costs.
The newly purchased materials, including flooring, windows, wood, doors, kitchen, bathrooms etc, are valued at their purchase price plus labor to install. Keep good records on what you spend for building or remodeling so that you can show your records if there is a claim.
Can a homebuilder insure his profit in a builders risk policy?
Yes, if profit is included in the insurance value, profit will be included if there is a loss. I always encourage new home builders to include profit in their amount of insurance because if the property is destroyed due to a covered peril, they might be rebuilding the home without any profit.
What are builders risk soft costs?
Soft costs are cost incurred by a builder which are not included in the cost of sticks and bricks and include the following:
- advertising and promotion expense
- interest on construction loan
- architectural, engineering or consultant fees
- real estate and property tax assessments
- commission or fees for renegotiation of leases
- insurance premiums
- legal and accounting fees
- fees for license and permits
Builders risk has become one of our favorite policies to write because buyers are so excited about the construction project. Builders risk is written on an all perils basis and pays for materials and labor to rebuild a property damaged by a covered peril. There is no coverage for worker injuries or third party liability. Workers compensation insurance and general liability insurance is also recommended to cover those exposures.
Call 972.234.5588 for a Dallas builders risk insurance quote.