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Replacement Cost Value Versus Market Value: What’s the Difference?

By May 16, 2017May 28th, 2021Blog

Many homeowners often wonder why the limit on their homeowner’s insurance policy is more than the market value of their home. In some cases, there can be a drastic difference between what you recently paid for your home versus how much insurance coverage you have. Sometimes it seems that it’s just a way for the insurance company to get more premium, right?

Not quite! Keep in mind that market value and replacement cost value are two completely different things. For instance, a 2-story home with 2,000 square feet of living area can have a range of market values contingent on a variety of factors:

  • What neighborhood is the home located in?
  • Which school district is the home located in?
  • How has the market been for recently sold homes with similar characteristics?
  • What is the current inventory of homes in the area?


The answers to these questions, among others, can substantially change the market value of a home.

The cost to build a home is more fixed in nature. The cost of brick, lumber, siding, etc. doesn’t vary nearly as much from one regional area to the next. With that in mind, the cost to build a home in an area where the market values aren’t as strong shouldn’t vary much from areas where the values are higher.

The costs associated with replacing or rebuilding a damaged home are substantially higher than those to build a home new. Why? Partly because specialized contractors and skilled laborers repair and rebuild the home at a labor rate that is usually higher than the rate negotiated in building homes new. The costs of demolition, debris re­moval, rebuilding to current local building codes, and special planning and architectural work problems that often aren’t encountered during the process of new construction drive up the cost of repairing your home as well.

Having an adequate limit of insurance is crucial in the event of a loss to your home. If you’re still concerned about your limit of insurance, be sure to reach out to The Turner Agency or your independent agent to review the replacement cost estimate that has been completed for your home. We will make sure that your home is properly protected and that your limit of insurance – which may be more than the market value – is correct.

The Turner Agency, Inc. is a local Trusted Choice® independent insurance agency located in Greenville, South Carolina. Serving the Upstate of South Carolina and beyond since 1962, we offer a variety of personal and business coverage choices and can customize an insurance plan to meet your specialized needs for home, auto, business, or other insurance products.  Contact The Turner Agency today.

The information in this article was obtained from various sources and is not all inclusive regarding the subject matter. This content is offered for educational purposes only. Posted with permission from Central Insurance.