Comparing the Costs: Replacement Versus Market Value

Comparing the Costs: Replacement Versus Market Value

The difference between the cost to rebuild a property and the market value of the property can be very different. When your clients are preparing to secure homeowners’ insurance, it’s important to determine the cost it would take to rebuild the home from the ground up. Homes should be insured to their replacement cost to ensure clients can be indemnified in the event of a loss, such as a fire or in heavy winds.

The replacement cost is the amount it would take to repair or rebuild at the current price of construction materials and labor. For example, if your home is destroyed in a fire, your insurer will reimburse you for the cost of rebuilding the house to the way it was before. On the other hand, the market value of your home may be higher or lower depending on the market and market value includes the land.

It is important to note that your home insurance amount is based on the replacement cost, not the market value, so calculating the cost is best completed with an insurance professional who has access to calculation tools. Using the market value as an insurance limit can result in being over insured and paying too much. Considering the cost of both labor and materials has increased, if you have had the same policy for a few years, it may make sense to call for a complimentary replacement cost review.

Please click here for an appointment with our team for a complementary review and to connect client to our team for any upcoming home closing.

This material is meant for general illustration and/or informational purposes only. Although the information has been gathered from sources believed to be reliable, no representation is made as to its accuracy. The material is not intended to be relied upon as a statement of the law, and is not to be construed as legal, tax or investment advice. You are encouraged to consult your legal, tax or investment professional for specific advice. Not for reproduction.