Are you familiar with the difference between market value of your home and replacement cost of your home? When you buy a new home, you often are bombarded with different terms and values.

Does the location matter when determining reconstruction costs?

You could have a property in Short Pump and take that identical-sized home and move it to another county in Virginia and see a major discrepancy in the cost to purchase the property. However, the cost to rebuild will be similar all over Richmond and surrounding counties. You pay a higher premium to purchase a home in certain zip codes based on a multitude of factors, demand in those areas, school systems, and other factors that impact the market value of your home.

What we advise a client to insure their home for, is solely based on the replacement cost of their home, which is determined by software that determines the cost per square foot to rebuild new today. In addition to computer software aka a cost guide used to determine reconstruction cost, often the carrier will conduct a physical property inspection after the policy is placed in force. 

Replacement cost could be higher or lower than the market value. On a replacement estimate, we are going in and looking at all the factors of your home, the year it was built, the square footage, the siding, the placement of windows, crown molding, the flooring finishes, and more. Is it one level, two level? Is there a basement? Is it finished or unfinished? What types of finishes?

The cost per square foot to rebuild is coming in much greater today than previous years. We have seen supply chain issues and that has impacted the cost of rebuilding homes. 

If you’re getting your renewals, you’re probably seeing a spike in the dwelling coverage. That change ensures you are still adequately covered if the house were to burn down and need to be rebuilt.

I just want to stress again, that the cost to rebuild your home is never going to coincide with the market value. Take older homes into consideration. We have a lot of homes in Richmond that were built in 1910, 1915. The quality of construction and the finishes then are different than some of the new homes that we’re seeing built today. Taking that into consideration is going to drive up the cost per square foot to rebuild, because at the end of the day we are insuring you for replacement cost. That means the home needs to be built and put back exactly like it was, including the same quality of finishes, but at the cost to do so today.

Often we are asked, what’s the difference between market value and replacement cost? Or even a Tax Assessment? 

  • Tax Assessment – The county in which your home is in will value the land and dwelling to calculate the property tax. Increased home values typically trigger increased tax assessments, as well as improvements made to the property. 
  • Home Appraisal aka Market Value – This is the estimated price at which your property would be sold on the open market. This is influenced by location, condition, and overall demand in the area.
  • Replacement Cost – Replacement cost is the estimated cost to construct, at current prices, a building with the same finishes as the existing home. In some instances, replacement cost has come in below market value, and in some instances, it comes in higher. With increased costs in materials, we have seen reconstruction estimates rise, often far exceeding even the market value of the home. Also, the original age of construction and finishes i.e. builders grade, semi-custom, custom, and designer can all impact the cost per square foot to rebuild. 

Please know our goal at Knight Magee is to ensure you are properly covered. We realize it can be frustrating to see a Coverage A limit that exceeds what you even paid for the property, but we need to always stay in line with cost guides and ensuring you have enough coverage if you need to rebuild your home. 

We’re always happy to have a one-on-one discussion and go through a cost guide with you so you can see the factors that are involved in determining the cost to rebuild your home. – 804-320-0129

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