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The Important Difference Between Replacement Cost and Market Value

With the constant weather changes that are happening across the country, many people have fallen victim to the damages that result from the fluctuating weather patterns.  It is now more important than ever to recognize that your property's market value is different from replacement cost.

If you're unfamiliar with the terms, market value is the present price for which your home can be sold or bought.  Replacement cost denotes the price to rebuild your home to the exact quality and using the same material all on the remaining lot. Due to the ever-changing building codes, the price of materials and construction, replacement costs can become more expensive than market value.

Some of the factors that are considered when formulating the replacement cost include:

  • Type of Materials and Finishes such as granite countertops or solid surface, coffered ceilings or flat
  • Building / Construction Costs which vary by location
  • Building Code Requirements - Some codes require certain features that cost more (i.e. stilts / piers in flood zones, strapping and tie-downs in wind zones, earthquake features)
  • Custom Home Features - Custom home builders consistently use higher-quality materials and workmanship in custom homes so they are more expensive to build or re-build than a regular ("Cookie Cutter") builder's homes

In some cases, you will need a "Dwelling" coverage limit on your homeowner policy that is higher than your purchase price. This may occur in foreclosure.  It can also be true in subdivisions built by one builder who may have economies in their pricing because they are building so many homes at once.  If you suffer a loss, you will be forced to repair or rebuild at current market prices without such discounts.  One thing to note is the dwelling value does not include any value of the land/site/ lot.  The dwelling value on a homeowner policy does not have to cover the loan amount, although lenders may argue this.

Two homes that look alike on the outside may be finished completely different on the inside.  Hardi-plank can look like wood siding from a distance, for example.  New laminate floors can look like hardwood but are not as expensive.  For your own benefit do not assume.  Ask the questions.  Consult with one of AssuredPartners Personal Lines experts today to learn more.  We have tools to help you get accurate figures, and sometimes must also use good judgment to "tweak" these to get a reasonable figure based on our knowledge of local costs.  Learn more at AssuredPartners Personal Insurance.​

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