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Rebuild cost vs market value: What’s the difference?

Being a homeowner often means learning new words, acronyms, and property laws. And when it comes to insurance, one major distinction to learn the difference between is a property's rebuild cost and its market value. Keep reading for our jargon-busting advice and never confuse the two again.

One of the most important things to understand when it comes to insuring your home is the difference between your home’s rebuild cost vs its market value.

While both these figures are important (depending on your property), they represent very different things.

As a result, it’s important to understand the distinction so you properly protect your home and understand its worth.

Rebuild cost vs market value cost

In short, the market value of your home is a realistic amount your property would sell for on the open market. Of course, this is also dependent on the time of your home’s valuation due to market fluctuations.

On the other hand, the rebuild value (or reinstatement cost) is how much money you’d need to rebuild your home in the sad event it was completely destroyed.

Need more info? Let’s take a deeper dive into each of these distinctions below.

What does a rebuild cost entail?

A rebuild cost refers to the amount of money it would take to completely rebuild your home in the event it was completely destroyed. Your insurance provider will detail the type of ‘peril’ that’s covered. For example, a fire, tornado, or hurricane.

This figure doesn’t just include the cost of materials and labour. It also includes the cost of any permits, fees, and other associated expenses.

NB: It’s important to understand the rebuild cost isn’t the same as the market value of your home. This is because rebuild costs are typically lower than market value rates. For example, the latter takes into account factors such as your location, the neighbourhood you live in, and your home’s proximity to amenities.

Read our guide: Cost to rebuild a house for more information.

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What does market value mean?

Market value is the amount of money your home is expected to sell for on the open market. This figure takes into account the cost of materials and labour alongside a variety of other factors such as your home’s location, size, age, and condition at the point of sale. Current market trends and demand are also taken into account.

NB: Market value isn’t the same as the amount you paid for your home. The market value of your home fluctuates over time depending on a variety of factors. This includes changes in the local real estate market, economic conditions, and the condition of your home itself.

Related content: Learn how to add value to your home to improve your market value.

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Why is a rebuild cost important?

Knowing your home’s rebuild cost is important because it helps make sure you have enough insurance coverage to completely rebuild your home in the event of what’s called a ‘total loss.’

For example, if your home is underinsured and a fire burns it down, not being able to afford the cost of rebuilding it is devastating. So, having a good insurance policy is important for avoiding this heartache.

In addition, most insurance policies need you to insure your home for at least 80% of its rebuild cost to receive full coverage for any agreed losses. If you don’t insure your home for at least 80% of its rebuild cost, you’re usually only entitled to a partial reimbursement for any covered losses.

Related content: How much does fire damage restoration cost?

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Why is your home’s market value important?

Understanding how much the overall value of your home is in the real estate market you’re in is useful for several reasons. For example, if you’re considering selling your home, refinancing your mortgage, or using your home as collateral for a loan, your home’s market value will determine your lending options.

The market value of your property is also important if you’re considering purchasing a new home. This is because it helps you understand whether a particular home is fairly priced based on its location, size, and condition.

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How to determine the rebuild cost and market value rates of your property

There are a variety of tools and resources available to help you determine the rebuild cost vs market value of your home. Some of these include the following:

Online calculators

Take your pick from a variety of online calculators, which will all help you estimate the rebuild cost and market value of your home. Factors include your location, the size of your property, and how long ago it was built.

Appraisals

A professional home appraisal will give you a detailed analysis of your home’s value. This will be based on a variety of factors already mentioned. (For example, its location, size, condition and any recent sales of similar homes in your area).

Insurance estimates

Ask your insurance company to provide you with an estimate of the rebuild cost of your home. They will base it on factors such as the cost of materials and labour in your area.

Estate agents

A local estate agent will be more than happy to provide you with a detailed analysis of the market value of your home. Again, they’ll base it on the recent sales of similar homes in your area.

Final thoughts

Understanding the difference between the rebuild cost vs market value of your home is an important part of making sure your home is properly insured.

While both of these figures are important, they represent very different things and require different levels of consideration.

  • The rebuild cost is the amount it would take to rebuild your home in the event of a total loss. It’s important to insure your home for at least 80% of this value to ensure that you have adequate coverage
  • The market value represents the amount your home would sell for on the open market. It’s useful for understanding the overall value of your home in the current real estate market
  • You can determine the rebuild cost and market value of your home by using a variety of tools and resources. These include online calculators, appraisals, insurance estimates, and real estate agents. It’s important to use a combination of these resources to get a comprehensive understanding of your home’s value

Did you find this blog on your home’s rebuild cost vs its market value useful? If so, check out our blog for more helpful tips and expert advice.

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