Pub. 4 2014-2015 Issue 1

O V E R A C E N T U R Y : B U I L D I N G B E T T E R B A N K S - H E L P I N G C O L O R A D A N S R E A L I Z E D R E A M S July • August 2014 19 To develop an accurate replacement cost, all features that af- fect the rebuilding need to be included. A house on a hill can cost 20-30%more than one on flat ground. An older house can be two to four timesmore expensive than itsmodern equivalent—homes built pre-1945 contains vintage features not common in construc- tion today, such as plaster walls, oversized trim, true-dimensional lumber, etc., that will increase the replacement cost. Factors may include howaccessible the home is for the builder, andwhether all additional areas such as foundations, garages, porches and other areas are included in the valuation. These can add 30%-50% to a home’s replacement cost. Has the quality of the kitchen been con- sidered?What about the baths? Has the owner modified portions of the home with customized features and finishes? It is also not enough to assume that a recently built home can be rebuilt at the same cost. Replacement costs can be 10-25% or more than newhome costs, depending upon the home. Since only one home is being rebuilt by the builder, there are no economies of scale that help to reduce the expenses for the builder. That means an increased cost to the homeowner for rebuilding the home over similar homes that are built as part of a development. Determining replacement cost is a specialized field, just as determining market value is a specialized field. Both require localized knowledge too. How do you check the values that you are responsible for? Fortunately, there are firms that exist to help answer the two vital questions, “What is a house’s replacement cost and, if needed, its actual cash value?” It can be as simple as a free website for a quick ballpark cost to a book from a book- store that may provide a greater depth of information (although perhaps somewhat dated costs). It could be a multi-page field questionnaire that requires hours of measuring, documenting and completing paper/computer forms or hiring someone to complete this inspection. It could be as simple as entering an address into a web-based system. Each system can be tested against established answers and validated. Each has its advan- tages, disadvantages and costs. However, regardless of the method chosen, finding out what it will cost to rebuild a house is worthwhile and will have an impact on the number of sunny versus stormy days for banks and homeowners, alike. There is some work involved up front, but once a program is chosen the risk management teamwill be able to receive standardized and consistent reports on replace- ment cost in anticipation of the next stormy day. Regardless of where and when rates rise and for whom, it is necessary to know true replacement cost now. Luckily, there are solutions available that can help! n CORE BANK PROCESSING • MANAGED SERVICES • MOBILE & INTERNET SOLUTIONS PAYMENTS PROCESSING • ELECTRONIC & PRINT DISTRIBUTION • REGULATORY COMPLIANCE TODAY WE PUT THE ODDS IN OUR FAVOR. It’s time to reduce your chances of an OFAC penalty. csiweb.com/luckydog