Avoiding Recovery Pitfalls: Part III- Where do We Start?
If you are in the unfortunate position and lost your house to wildfire, your first experience with your insurance company will probably meeting your adjuster at your burned out property, and trying to make sense of the path to recovery. Today’s lesson will primarily be focused on those who have suffered total loss.
Your adjuster may be an employee of your insurance company, or they may be an independent contractor hired by your carrier to start facilitating your claim. Most employed field adjusters have “draft authority” to authorize immediate payments to help cover your immediate needs. These may include advances on ALE (additional living expenses), or for contents, so that you can purchase clothing, bedding or furniture needed immediately. Independant adjusters can only make recommendations to the carrier for ALE payments, so you may have to wait for your carrier to issue your check once the indy adjuster submits all the paperwork.
STEP 1- Get Situated. If you have lost your house, make sure your adjuster knows how to contact you, and where to send mail, including checks, as your local post office will no doubt be overwhelmed. Expect mail delays. Remember 1,000’s of mailboxes have been destroyed, and all that mail has to be sorted and stored at the Post Office. If you haven’t secured temporary housing yet, try and rent a PO box where you can receive mail, and where there is someone to sign or accept packages for you.
Your carrier has the obligation to provide “like kind and quality” temporary housing during the time your home is being rebuilt. This may initially be a hotel room or even a friend or relative’s house until you can find your own place. Your carrier must pay fair market value. Don’t be surprised to see huge spikes in the cost of rental housing and apartments as 1,200 homeowners try and find a rental at the same time. That’s not your problem. Your carrier has to pay the FMV, even if they don’t like the terms. Try and negotiate a month-to-month lease as you may need to keep your options open if you later decide not to rebuild.
If you end up staying or living with a friend or relative, execute a written rental or lease agreement with a stipulated monthly rent. Make sure it includes costs or allowance for utilities. Your friend or relative should be charging you (post fire) fair market value. Turn in the rental agreement to your adjuster, and pay your monthly rent to your friend with a check (if possible) to evidence payment. Your carrier will reimburse you for that amount each month. Don’t do any favors for your carrier and give them a cheap rate. They are not going to do you any favors when they adjust your loss. As long as there is a bone-a-fied rental agreement in place, paying a friend or relative should not be an issue, provided you are actually residing at that location, and the rent is not excessive for the housing provided.
STEP 2- Establish FMV Rebuilding Costs. Once you have established a place to live, you next need to give attention to establishing FMV for the home you lost. This is more difficult than it seems. In times of disaster, FMV may be difficult to determine as overwhelmed builders and contractors begin charging whatever they want (or can), driving up reconstruction costs. The key to securing the best settlement is being able to describe and document every aspect of your old house’s construction. An accurate original or recreated floorplan is essential. Without it, your carrier is going to use basic assumptions when establishing valuation. “Basic assumptions” will be limited to (1) SF of house and garage; (2) numbers of bedrooms and baths; (3) type and style of roof and wall framing; (4) type of siding or stucco; (5) general interior finishes for flooring, countertops, cabinets, showers and tubs. This type of estimate is called a “valuation estimate” and differs significantly from an actual line-item estimate based upon actual room dimensions, layout and finish. Expect your adjuster’s “valuation” estimate to be 60%-70% of the actual cost of reconstruction based on a line-item estimate. Finding a contractor versed in using Xactimate, the industry’s dominant estimating software will be difficult. Fortunately, there are consulting contractors (like me) who know how to exploit Xactimate’s functionality to produce real-world, line-item estimates which you will need in order to maximize your claim.
Here is the difficult part. It takes between 50-60 hours of labor for a qualified contractor to interview, scope, diagram and draft a proper line-item estimate. A typical line-item estimate for a 2,000 SF house may be 65 pages long, and have over 850 line items. Most contractors do not have the acumen to produce an estimate of this type, nor will be willing to do so for free unless they have a guarantee that they will be building your house. Because you can’t sign a contract without a dollar amount, or without the contract being pre-approved by you adjuster, your builder most likely won’t devote this amount of time to a job he may never get. If you find yourself in this position, please call me as I can help. There is a charge for this, but it guarantees a qualified accurate independent and defensible estimate when settling with your insurance company that will ensure your claim is what you are entitled, approved and paid.
In addition to a general contractor, you will eventually need to hire an architect, a structural engineer, a soils engineer, a civil engineer, a Title 24 engineer, a fire sprinkler engineer, a septic engineer, and possible a landscape architect before you are ready to go to plan check. DON’T DO THIS YET. Concentrate on establishing replacement cost first. You won’t know what budget you have for engineering or rebuilding until you reach a basic agreement with your carrier on rebuilding costs.
Remember, your carrier will pay to rebuild the house you had, not the house your end up rebuilding. Establishing every detail of your old house and its construction is the key to a good settlement.
If you have any questions or need some advice or direction about obtaining or the cost of line-item estimates, please feel free to contact me through my website RRAadvisors.com
Best wishes to all-
Call us at (800) 298-6978. 37 years of large-loss reconstruction experience. Call immediately to book your FREE appointment.
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By Kelly Konzelman CEO