Why You Should Get the Replacement Value of Your Home Before Getting Insurance Quotes

Posted on: 19 January 2017

Many people think the market value of their home is the same amount of money it would cost to replace their home in case of a total loss. In fact, insurance companies price their policies on the replacement value of your home, but this is not the same as the market value.

Market value—How much a buyer would pay for the home and accompanying land.

Replacement value—How much it would cost to rebuild the home to a pre-loss condition.

Without knowing the replacement value or an estimation of that value, you won't know whether you're paying a fair price for home insurance. Keep in mind that your home insurance covers the structure of the home itself, not the land.

How to Find the Replacement Value of Your Home

There are several ways to come up with a home's value. Figuring this out yourself isn't always easy, but you have a few options available.

Use a dedicated online calculator—Search for a replacement-cost calculator online. Using the calculator may come with a fee, but the company you work with can give you an official report on your estimated replacement cost.

Speak to a few contractors—Mostly, construction costs per square foot make up the replacement cost of a home. Contractors may know best what those costs are for your specific area. Ask multiple contractors and see whether you can find a median price.

Find the per-square-foot construction costs—It may take some effort, but you can find the per-square-foot construction costs yourself. Search online, or ask a few contractors as in the last suggestion.

Many of the larger insurance companies have information on finding these costs as well. Many home-building websites also contain information and calculators.

Once you have the figure, you can do some math and come up with an estimation. You take that cost and multiply it by the area of your house. The result is your replacement cost, or rather, a ballpark figure of it.

Order an appraisal of the replacement value—An independent appraisal can help you a lot, but you have to make sure you specify you're looking for the replacement value. An appraisal will free you from having to do all the legwork. However, you may still want to try other methods so you can compare the numbers.

Once you know how much it will cost to replace your home, you can choose home-insurance options that closely match that number. In this way, you will not over-insure or under-insure your home.

Start By Asking Local Real-Estate Agents

A real-estate agent can also help you figure out what other types of insurance offerings will work best in your particular area. A real-estate agent already knows a lot about other homes in the area.

Local real-estate agents may already know the most recent per-square-foot construction costs. It's even possible they already know the replacement value of your home or a close approximation to it. They might just save you a whole lot of time and effort.


Saving Money On Real Estate

After I got promoted at work, I realized that there were a few things I wanted to do with all of the extra money. One of the biggest goals that I had was investing in local real estate, because I wanted to experience what it would be like to own multiple properties. It was really overwhelming at first to put in the offers, but after awhile I got really good at saving money on real estate and seeing the rewards. This blog is all about knowing which properties to invest in and focusing more carefully on the art of getting a great deal.