Unless the city is pitching in $$$ for the effort, this seems legally questionable. Insurance will only pay the market rate (and barely that), and the cost of such a process would surely run higher.
I live in a community where there is very little oversight like this (by design), but my mortgage requires that I cover my home for the cost to rebuild, not the market value. I questioned this because in my case it’s more than twice the value, but apparently it’s how things are normally done.
Well, market rate in this context meant the (regional) labor and material costs to construct a generic, equal sqft house with X rooms and Y baths. I perhaps chose the wrong term.
It'd likely require a lawsuit to make them shell out an additional $200k+ for the specialist architect and master carpenter to help recreate the original structure.
I don't know about "market rate", but I believe that items are typically insured for their replacement value.
There may not be a requirement to insure a protected structure at all, but it's plausible that such a measure could be introduced because of the perceived externalities (i.e. heritage value to society) of a protected building.
I live in an inexpensive area, and purchased my five(-ish) bedroom home for ~$125k. It would cost about $240k to rebuild, exclusive of the cost of the land.
When buying homeowner's insurance, my interest is that I would not lose value in the event of my home's destruction; I want to be able to buy another home of similar value and not owe more money than I already did. However, my mortgage requires that I insure the home's replacement value, and no insurer that I could find would cover me for only $125k.
This results in what I believe to be a negative incentive: assuming no equity, I currently owe $125k and have a home. If my home were to burn to the ground tomorrow, I would have a check for $240k. I'd then use that check to pay off my existing mortgage and buy a home of similar value outright - leaving me a profit of ~$115k in the process.