Home Replacement Cost versus Market Value

| Home Insurance, Homeowners Insurance, Insurance education.

Home Replacement Cost versus Market Value

Real estate values in Las Vegas have certainly gyrated over the past decade.  Most parts of the valley saw home prices peak in 2008 and then crash dramically over the next few years.   Luckily, 2014 saw nearly values on the rise again, with most ZIP codes experiencing double-digit gains.   Real estate market values are subject to fluctation based on many factors such as the demand for housing, economic growth and interest rates.    Replacement cost – the cost to rebuild a structure in the event of a total loss – is a much more stable figure.   When discussing home insurance with our clients, one question we are asked frequently is why the replacement is so different from market value.   To answer that question, let’s discuss home replacement cost versus market value.

Most homeowner insurance policies include replacement cost coverage on the dwelling.   Well written policies include extended replacement cost coverage that provides an extra measure of safety.   Replacement cost means the amont of money it would take to rebuild the home to the condition it was in prior to the claim.  It also includes the cost of removing debris and updating the home to current code.  The replacement cost of a home is typically higher than the original construction cost, especially if the home is part of a mass-built tract or subdivision.   A better name for replacement cost might be “reconstruction” cost.

Determining your home’s replacement cost is not an exact science.   Insurance companies use software programs, such as Marshall & Swift, to determine the approximate reconstruction cost of your home.   That reconstruction cost is typically the figure used for your home insurance dwelling coverage.

Market value, on the other hand, is simply the price that someone is willing to pay for your home. Market value can vary tremendously based on geographic area, including different ZIP codes within a city.   The replacement cost of homes will vary very little from one ZIP code to the next.  In other words, a 2500 square foot home in Summerlin will cost approximately the same to rebuild as the same home in North Las Vegas.   The market value of those two identical homes is likely to be very different.

In summary, when shopping for Las Vegas home insurance, make sure you pay close attention to the replacement cost amount being used for your quote.  It is important that you buy adequate dwelling coverage from a reputable insurance agent and carrier.  The personal insurance experts at Safeguard have been providing homeowners insurance to Las Vegas residents since 1998.  We will provide you with quotes from mulitiple home insurance providers, making sure you have the right coverage at the right price.

Contact us today for a no-obligation homeowners insurance quote, or obtain a no-obligation quote online in about 10 minutes.

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