“It’s a seller’s market” is a term you’ve probably heard lately. Across East Tennessee, the average home value has gone up by about $73,000, with sale prices in early 2021 increasing by over 5% compared to last year according to the Federal Finance Housing Agency (FFHA). This holds for both primary residences and vacation rental homes.
While an increase in inventory may make an impact, there are no signs of a major “cooling” of the market. So, what does all this mean for your vacation rental home insurance? It depends on several factors.
MARKET VALUE VS. REPLACEMENT COST
Generally, an increase in the market value of your vacation rental home will not have a direct impact on your insurance coverage. That’s because your policy will likely have coverage based on replacement costs.
However, replacement costs may be different in the current market. There are worker and supply shortages throughout the construction and renovation industry, and this can affect replacement costs for a vacation rental home.
INCREASE VALUE DUE TO RENOVATIONS
Have you redone your vacation rental home’s bathroom or kitchen? Have you added a hot tub or maybe a garage or an unattached structure like a shed?
These vacation rental home renovations are perfect examples of when your coverage needs to be reviewed. Replacement costs for new rooms, structures, and fixtures will likely be different than what may be covered by your current policy.
CHANGE IN YOUR RISK
With new neighborhoods and developments being built, there may be changes in the risks to your vacation rental home. For example, flood risk can be higher in heavily paved areas that do not allow for adequate drainage.
Earth movement can loosen trees and even increase the risk of sinkholes. It’s important to consider how these factors may impact your vacation rental home, even if you’re not directly involved in new neighborhood construction.
Consulting with your insurance agent to review your policy’s coverages is an important step for both the renewal of your policy and your own annual financial review. And bear in mind that different markets change differently. If your vacation rental property is in a different market, the effects on your insurance will be different.
Make sure you’re letting your agent know of changes like the above, as well as other purchases, additions, or alterations to your vacation rental home that might impact what you need to be covered. Don’t wait for a claim to find out you needed more coverage!
Need help with an insurance review? Give us a call at 865.453.1414 and we’ll help you start the process!