market value

Market Value vs. Reconstruction Value

When it comes to market value vs. reconstruction value, you want to ensure that your homeowners policy limits correspond to the cost to rebuild in case of a natural disaster, whether it is a thunderstorm or lightning, fire or tornado. Unlike a home’s resale value (which includes the cost of the land), the cost to rebuild is based on the amount needed to hire a contractor plus building materials and other additional costs.


Purchase Adequate Coverage

You decide how much coverage to buy for your home, but we recommend purchasing coverage at least equal to the estimated cost of rebuilding your home, AKA Replacement Cost.


How Does this Differ from Market Value?

The market value of your home is the amount a buyer would pay for your home, including the land, no matter how much rebuilding would cost. 


What is Replacement Cost?

Replacement cost is the rebuilding cost necessary to repair or replace the entire home, including construction costs. This cost is different than the following:

  • The market value
  • The purchase price or the cost of the land
  • The amount owed on a mortgage

Due to the coronavirus pandemic, the construction industry is experiencing both shortages in labor and supply chain disruptions for materials. The price of lumber more than tripled since April 2020. The National Association of Home Builders estimates that this surge has added nearly $36,000 to the average cost of building a new single-family home.

COVID-19’s impact on unemployment and the labor force hit the construction industry as well. According to Contractor Magazine, “in 2020… construction spending rose by 4.8% even as employment fell by 6.3%.” The industry is facing a shortage of nearly half a million workers, causing construction labor costs to rise as well.

When choosing replacement cost for your home insurance, these costs will be absorbed by your insurance company if disaster strikes and your home must be rebuilt, saving you from additional hardship.


How do I Know Replacement Cost?

Get an estimate of the replacement cost of your home from a reputable builder. We can help connect you.


Home Improvements

When making a major change, let us know specifics. For example, if you’re replacing a standard bathtub with a whirlpool tub, or if your new countertops are made of marble, your home improvements could add enough value to your home to justify reexamining your coverage limits.


We’re Here to Help

Have other questions or doubts? We are ready to assist you in the process of determining the value of your home and purchasing the right coverage to protect your investment.

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