Many people underestimate the replacement value of home items. It’s easy to come up with a rough number based on the property itself and your personal effects, but many homeowners forget that, in case of an emergency, the cost to rebuild your property is much more than those two factors, notes Stewart Property Management experts.
This cost also considers other everyday items that you might be overlooking, such as kitchen and bathroom essentials–everything adds up. An average three- or four-bedroom home may cost around $150,000 to $200,000 to replace!
Understanding Home Replacement Cost
‘Replacement cost’ refers to how much you can expect to spend to rebuild or replace your property and belongings. It’s based on the real-time cost of replacing damaged materials and belongings with exact (or near-exact) matches. In the world of insurance, replacement cost is important to consider because it determines how much your insurance company will pay to get your place back in shape based on coverage limits.
Replacement cost is different from actual cash value and market value. Actual cash value is the home’s estimated value before it was damaged (minus depreciation). In contrast, market value is the amount someone is willing to pay for the property (including the land) determined by an appraiser.
How to Calculate Home Replacement Cost
There are a few ways to calculate home replacement costs. Generally, though, you can determine this by multiplying your home’s square footage by the average construction cost per square foot in your area.
Here are some methods to help you calculate your property’s replacement cost:
Insurer Appraisal
Because replacement cost is generally used for insurance purposes, it makes sense to have your home insurance provider appraise your property for you. They typically do this by using software, and they give this estimate when you get your initial quote. Because the appraisal isn’t in-person, the figures given are typically ballpark estimates and may not be entirely accurate.
Professional Appraisal
The best way to get an accurate estimate of your home’s replacement cost is by getting a professional appraisal by an appraiser or contractor. They’ll have better insight into local ordinances, building costs, and specific item prices, and can provide a better assessment of your property’s features. These services are often done in person, so your home will be more thoroughly inspected.
Appraisal Tools
There are several free or subscription-based appraisal tools online that can help you find your home’s replacement value. While convenient, they may be limited in scope and fall short of accuracy. Still, they’re helpful in getting an idea of replacement cost so that you have a point of reference for your possible expenses.