top of page

Market Value vs. Estimated Replacement Cost

When shopping for homeowners insurance, one of the most important decisions you'll have to make is choosing the right amount of dwelling coverage for your home. One of the key factors in this decision is determining the value of your home. But what value should you use as a basis for determining your coverage amount? Should you base it on the current market value or on the estimated replacement cost, often referred to as "estimated cost to rebuild"? In this post, we'll review some of the differences between these two values and help you understand which one is most used for insurance purposes.

What's the difference: Market Value vs. Replacement Cost?

  • Estimated Replacement Cost: The estimated replacement cost of your home is based on the amount it would cost to repair or rebuild your home if it were destroyed or severely damaged. This value takes into account things like the current costs of building materials, labor, and any necessary permits or fees. It can vary from your home's market value based on things like the age of the property, the materials used in its construction, and the overall complexity of the structure. In general, this value is often a more accurate reflection of the amount of coverage you'll need.

  • Market Value: Your home's market value is essentially the price that you could realistically expect to receive if you were to sell it today. The value is influenced by a number of factors, such as the location, the size of the property, and the current state of the housing market. However, it doesn't necessarily reflect the cost of repairing or rebuilding the home if it's damaged or destroyed.

The table below illustrates some of the factors that can impact replacement cost and market value.

Is Replacement Cost Lower Than Market Value?

A home's replacement cost can often be lower than its market value. This is because estimated replacement cost isn't influenced by factors such as the land itself, the neighborhood, and the supply and demand of the housing market. However, this isn't always the case. Depending on where you live and how your home is constructed, it could be insured for more than its market value.

How to Figure Out What The Home's Estimated Replacement Cost Is?

Most of the major insurance companies today offer their own tools that can help generate a home's replacement cost estimate based on details such as its address, and square footage. It's important to review this estimate and make sure the details used to calculate it are accurate. To be on the safe side, you could consider getting your own replacement cost estimate from a licensed appraiser who specializes in rebuild cost appraisals. Remember, you are not looking for a market value appraisal, as you want one that is focused on how much it would cost to rebuild the physical structure of your home and sometimes surrounding structures.


In conclusion, homeowners’ insurance coverage can be complex, but it is essential to protect your home investment. Understanding the difference between market value and estimated replacement cost is crucial when it comes to selecting the right policy. Don't forget about the option to add extended replacement cost coverage, which is something we always recommend for a little extra protection.


bottom of page