Market Value vs Replacement Cost: What Is The Difference?

For those who have ever purchased a home, which requires Homeowners insurance, you may recognize that there is a difference between the amount you paid for the home and the actual amount of your basic coverage for the home, without belongings.

This is simply because you paid market value for your home while the insurance company used replacement cost value to estimate what the costs would be to rebuild your home. So what exactly is the difference between market value and replacement cost?

Market value is simply the price you paid for your home and most often insurance agencies do not give market value a second consideration because the real estate investment market can fluctuate so greatly.

If you look at a property in 2003 in your area, it may have sold for $100,000 but just three years later in 2006 it sold for $130,000. This has to do with the demand for homes in the area and the rising costs of real estate, but this doesn