Where do you live if your house burns down

Take your time. You’ll want to make everything right as quickly as possible, but your decisions have a long shadow, and making so many decisions under stressful, emotional circumstances can lead to less than optimal results. You’re in for a long haul, marshal your resources (trusted advisors, friends, experts, your own analytic abilities) and take the time to make better decisions. You will make mistakes, that’s inevitable, your goal is to avoid silly missteps.

Those who know about System 1 and System 2 from Kahneman’s Thinking Fast and Thinking Slow will want to spend as much time in System 2, the deep analytic frame, as possible, even though everything in your emotional makeup wants to make quick System 1 decisions that feel like they can relieve the stress and displacement you’re experiencing. Emotional decisions may not serve you best in the long run.

The neighborhood will recover, trees will grow back, value will return, your life will get normal.

Make taking care of yourself a priority: Get back to normal and get help when you need it.

Take care of yourself: Exercise, make time for yourself, keep social with family and friends (and pets), get outside, keep to the rituals and patterns of your pre-fire life, embrace new traditions that reflect your changed circumstances. You need to make taking care of yourself a priority — the workload of settling/rebuilding coupled with all your responsibilities can lead to less time for self-care. Fight that and make taking care of yourself your first priority. In the long run, you’ll make better decisions and end up healthier and happier. You can’t change what happened to you, you can choose how you react.

If you need help, get help from a therapist. Even the most centered, well-resourced individuals find the burden of living through the loss of all their possessions difficult. You should see no shame in needing help to work through your feelings of being overwhelmed and helpless.

No one knows what you’re going through, everyone’s experience with a substantial loss is personal and contextualized by their own life path. However many (like me with these notes) will want to offer advice and counsel. While well-meaning and sincere, those not affected by the fire will often say things that you may perceive as offensive, insensitive, or upsetting (such as, “I wish my house had burned down so I could start over”). Figure out how you want to deal with these types of comments, as you can expect them for years. If you can, keep in mind that those not affected often cannot grasp the enormity of your experience, and thank them for trying to help and remind them that fire victims are extra sensitive and have a lot to process.

Settling your claim and rebuilding requires working through a frustratingly complicated process that includes having an architect and builder help you wend your way through the bureaucracy of settling with your insurance company, then getting approvals from various city, county, and state authorities. You may feel like these entities are working against your desire to get started: They are not, they are just overwhelmed (likely understaffed before the fires) and struggling to keep up. While insurance companies are used to mobilizing, city and county and planning departments are not.

The motivations to keep in mind: The insurance company wants to settle for the lowest amount they can; the city, county, and state want you to build a house within a complicated set of guidelines and rules. In many cases, the house you lost cannot be built “as it was,” because the rules have changed.

You will be negotiating with your insurance company, who wants to settle quickly and for as small a claim as possible. The claims adjuster has been trained on how to negotiate, you need to do the same. Buy a book, take a class, whatever it takes to learn the basics of negotiating.

It is in the insurance company’s interest to start low, on the off-chance you will cave and settle quickly. It may seem like a waste, but you need to start high and expect to settle someplace in between. Unfortunately, trying to be fair may not be the best approach. Prepare yourself: Acting in a steadfast manner, knowing where you need to draw the line and where you can give can help you get a comfortable, reasonable settlement.

If you have a replacement cost policy, you likely have a percentage cap on how much above your policy limit you can settle for. Depending on the age of your house, the definition of “replacement” may become an issue. For example, if you have lathe and plaster walls (very expensive these days), drywall is not a replacement, and composite shingles are not a replacement for clay tiles. On the other hand, regulation has made some items obsolete, and rebuilding may require substantial upgrades (for example, earthquake and energy efficiency). You may be shocked at how much it costs to rebuild, so contacting a contractor to understand rebuilding costs may have you changing your policy limits. Best to understand what replacement cost means practically, your limits, and what you can use to negotiate the best settlement.

You can make upgrades to your house (for example, adding that walk-in closet you always wanted), but be aware that doing so creates the potential for conflict with your insurance company — how to value those upgrades vis-a-vis replacing your house. Building an exact duplicate (with upgrades required by code) is the easiest and quickest way to get started.

However, upgrading your house to modern tastes and living styles may create much future value, and there will never be a cheaper, easier way to make those upgrades than when you rebuild.

I am not up on the current details, but one factor about rebuilding you’ll need to deal with is Title 24 and related rules around how much energy your house consumes. California state law is implementing continually tighter rules leading toward “net zero” houses — houses that on balance consume no energy. While those rules may be loosened for the fire/rebuild area, however, energy usage will be something you need to consider if you decide to rebuild. You will spend a lot of time on window inventories, heating system capacity, the color of your floors (which affects heat gain) and other items that you may not expect to consider in order to get a permit to build. There are consultants who can help your architect and builder with the Title 24 calculations.

Get a good architect. Having a design with the subtle attention to flow, aesthetics, and usage that an architect can provide can make a big difference in the feel and value of your rebuilt house. Architects understand the interplay of building rules, natural light, aesthetics, and working with a builder. Working with an architect can be tricky (they can drive you crazy with aesthetic and other considerations you may not understand or expect to address) and expensive (your insurance should cover the cost), but it’s well worth it over the long haul.

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Replacing your interior furnishings can seem overwhelming, especially needing to buy everything all at once. Consider an interior designer to help with a more cohesive approach to refilling your new house with furniture and art that fits the space, lifestyle, and taste.

Get a good builder. It’s worth the wait and expense to get someone who has a track record of building from scratch. The builder is the person/organization you will spend the most time with during the rebuilding process: Choose well.

Watch out, spec house builders’ interests are not often aligned with owners’. They want to build the largest house the lot can support, use cheap building materials, specify superficial design elements, and make other decisions not aligned with what you want out of your rebuild. Spec builders are likely to be in the area looking to buy affected properties from the impatient who want to sell quickly and for emotional reasons at a low price.

Houses are not usually destroyed in a regular fire, and insurance companies are used to partial rebuilds with few architectural or fixture changes. A wildfire conflagration is different, with many houses completely destroyed, including their foundations. This total loss of the entire physical plant of your house and yard require a type of settlement that insurance companies are not used to making — in some ways they are as freaked out by the enormity of what happened as you are (although with the regular occurrence of wildfires the last few years, they have more experience with total losses, and likely an improved negotiating position as a result).

Push back on loss-of-use (aka additional living cost) limits. Devastating wildfires are not what your loss-of-use coverage is designed to cover. Rents will go up in an already tight housing market, and rebuilding will take much longer than expected. You are due a living arrangement equivalent to what you had before the fire, and you may be renting for multiple years. Get an explicit extension to cover market-rate rents for an extended time period, likely much higher than the calculated limits your policy lists for this type of coverage.

Remember, you have no furniture, you’ll need a furnished rental property. Or, have the luck and foresight to know what furniture you want and know that furniture can fit in your rebuilt house.

The insurance company will pay you some portion of your settlement, then pay as you go during the rebuild. If you keep your mortgage, the lender will also be involved in signing off on these payments (remember the lender has an interest in regaining the collateral that supports the loan).

You don’t have to make a final settlement before rebuilding. The insurance company will make payments as you rebuild, including covering reasonable cost overruns.

Learn from others, become a leader, don’t do this alone. Make connections to the press — journalists pay attention when they see a story that reflects something not working during the recovery. Try to find someone on the board of the directors of your insurance company and let them know what you’re going through.

You have a lot of decisions to make in a short time, and you will make mistakes (see Patience section). Do the best you can, learn to live with your mistakes and compromises, and don’t dwell on regrets — you’ve lived through something extraordinary.

If everyone is okay, the loss of your house and everything you own is devastating, but can be an opportunity to learn, grow, and create something new.

The process will take enough time that you may want to take a settlement and move on, saving you the hassle of rebuilding and allowing you to start living your life without the specter of rebuilding taking over your life the next few years. Consider moving on carefully, rebuilding is not for everyone. Moving on may leave you worse off financially, but better off emotionally.

If you want to stay in the area, the housing market just got tighter and prices are likely to go up, tempered by a post-fire slackening of demand.

You’ll need to make a decision about your mortgage. If you have a low rate you may want to keep your mortgage. Keep in mind that the mortgage holder will be nervous and hold insurance funds in escrow (remember they have no house to foreclose on until you finish your build). Alternatively, you can pay off your mortgage with your insurance settlement and use construction loans to finance the rebuild, getting a new mortgage once construction completes. (2020–08–22 note: With interest rates at historic lows, and likely to stay low due to the response to the pandemic, refinancing may lower your monthly costs).

Consider the new tax law when making the decision on whether to refinance. The new limits on how much mortgage interest you can deduct do not apply to existing mortgages. If the amount you borrowed on your mortgage is high, keeping your existing mortgage may make sense.

In Oakland, the city and the insurance companies negotiated a large contract to clear out all the properties for a shared cost. The dangerous, toxic remains of the fire need to be handled carefully; doing the cleanup en masse helps the city ensure the cleanup meets environmental and health concerns and likely at a lower cost than each homeowner negotiating their own cleanup.

The first version of this document was written after the Tubbs fire that devastated Santa Rosa and areas in Napa in 2017, and has been updated with each fire season. The wildfires this week (August 18, 2020) prompted a quick edit.