Market Value vs. Replacement Costs
Do you know how much your home is insured for? Many people don’t know for sure. And many people also don’t know there are two different coverage scenarios: market value and replacement value.
Often, the price of rebuilding your home varies significantly from the sale price of your home, so it’s important to understand the difference between replacement costs and market value.
Replacement Costs
Your home’s replacement cost is important to know from an insurance perspective. In the event your home is damaged or completely destroyed, you’ll need to have it repaired or rebuilt. Replacement costs are determined by your homeowners insurance, taking into consideration factors like your home’s size and age, as well as construction and labor costs.
A home’s replacement cost is usually lower than its market value because it doesn’t take market factors or the value of the land into consideration.
Market Value
The market value is the amount that a buyer is willing to spend to purchase the home and its land (basically, the price that your property would sell for on the current market). Factors like size, neighborhood and housing supply all affect market value.
Understanding Your Insurance
Your homeowners insurance company will typically calculate your home’s replacement value, but you also have the option of engaging a contractor or appraiser to get your own assessment of replacement value. You can opt for a policy that covers 100% of the replacement. You also have the option of extending coverage to more than 100% of the replacement value.
Your home’s replacement costs can change over time due to factors like inflation. Evaluating your coverage on a regular basis can help you determine if you need to make any updates to your policy.
If you have any questions about your homeowners insurance, we are here to help you understand your coverage.
