Market Value vs. Replacement Cost Differences

Replacement Cost - is the cost of repairing or replacing the entire dwelling with the same kind and quality of materials that existed prior to the loss, without any deduction for depreciation. An acceptable current replacement cost calculation must be completed on all dwellings. Refer to Travelers Estimator to determine replacement cost on most dwellings.

Market Value - is the fair and reasonable cash selling price of a dwelling in the market under ordinary business conditions. This can be significantly higher or lower than the replacement cost of the dwelling for a variety of reasons, including, but not limited to:

•Quality of schools, proximity of the neighborhood to work and shopping and the desirability of the neighborhood;

•The value of the land on which the dwelling is located (e.g. a home on a small lot with lake access may have a market value significantly higher than the identical home located across the street with no lake access); and

•Maintenance of the dwelling (e.g. broken windows, missing porch railing, torn roof shingles).

•Work is done in a constricted area (e.g., smaller lot with adjacent homes in close proximity) so debris removal and building materials can not be handled with large commercial equipment;

•It requires more skilled contractors to do the reconstruction work and their rates are generally higher than new home contractors;

•Unit costs for materials are significantly higher because of the smaller quantities necessary for repairs. New home builders often order materials in bulk which results in cost discounts;

•Rebuild work is more labor intensive and less efficient;

•There are fewer craftsmen & materials available to handle the reconstruction of older homes, especially those designated as historic homes, with “like kind and quality” labor & materials (e.g., plaster walls, millwork, carved wood banisters); and

•Rebuilding may have to conform to new building codes.