How to Estimate the Replacement Cost of Your Home
You can estimate the replacement cost of your home using online calculators, using a professional appraisal or by doing the research yourself.
It costs an average of $153 per square foot to build a new single-family home, according to the National Association of Home Builders. However, the cost to rebuild your house depends on where you live, the style of your home and the materials used to build it, so it could be very different from the national average.
How to calculate the replacement cost of your home
There are a number of ways to calculate how much it costs to rebuild your house — you can get an estimate online, pay for an appraisal or try to calculate it yourself.
How to calculate replacement cost
- Get an estimate from your insurance company
- Use an online calculator
- Hire a professional appraiser
- Do the math yourself
Some methods of calculating replacement cost are more accurate than others. For example, an estimate from a professional appraiser will be more precise than the estimate your insurance company provides through an online quoting tool.
The cost to build a home is not fixed, so the amount it will cost to replace your home will change over time.
The average cost to rebuild a home rose by $39 per square foot between 2020 and 2022, according to the National Association of Home Builders. That's why homeowners should review their replacement cost estimate every few years to make sure it's still accurate.
It's important to have an accurate replacement cost estimate to make sure your dwelling coverage limits are high enough to protect your home from a major disaster.
Get a replacement cost estimate from the insurance company
Insurance companies usually use their own technology — or third-party technology — to estimate the replacement cost of your home when they're putting together your quote.
For example, if you get a homeowners insurance quote from State Farm, it will use a tool created by Verisk Analytics called 360Value to calculate the replacement cost value of your home.
These tools use information about your home's structure, like the percentage of your home that has wood flooring and the material used to build your roof, combined with construction costs sourced by the creator of the tool to calculate your replacement cost. Some calculators ask you to provide most of the information about your home, while others source some of the answers from public records.
This method is probably the easiest way to estimate your home's replacement cost, but it won't be as reliable as an in-person appraisal. If you do plan to rely on an estimate from the insurance company, be sure to compare quotes from multiple companies before committing to a replacement cost value.
Find Cheap Homeowners Insurance Quotes in Your Area
Use an online home replacement cost calculator
Several independent companies offer replacement cost estimates online. Some calculators are available for free, while others have a one-time price or subscription fee.
A home cost estimate from an independent company isn't necessarily more accurate than an estimate from your insurance company, though.
The calculator will use similar questions and rely on the accuracy of your answers to make an estimate. Like an insurer calculation, it will also rely on data sourced by the creator of the tool, which may not be an accurate reflection of construction costs in your area.
However, it can help you make an informed decision by giving you an estimate of your home's replacement value that you can compare to the estimate from your insurance company.
Hire a professional appraiser
The most accurate way to determine how much it would cost to rebuild your home is to hire a professional appraiser.
However, this is also the most expensive option, because an appraiser will do an in-person inspection of your home. Instead of estimating the percentage of your home that has tile flooring, the appraiser will take measurements and come up with an exact answer. The appraiser should be familiar with construction prices in your area, which will make your replacement value estimate more personalized.
If you decide to hire an appraiser, make sure that you choose someone who is licensed or certified based on state standards. Appraisal costs can vary depending on where you live but are generally several hundred dollars.
Do the math yourself
You can also choose to do the same work as an appraiser to estimate the replacement cost yourself, but it will take a lot of time and effort.
Unless you have training, your estimate will probably be less accurate than those of professionals.
Doing the math yourself means you'll have to estimate the local rebuild cost per square foot of your home. This process will require you to get pricing from a variety of vendors, like roofing and siding companies, which will help you determine how much it will cost to replace each element of your home.
Calculating replacement cost by yourself is a free and educational exercise. However, we recommend comparing your estimate with another form of appraisal, whether it's through an online calculator or a professional appraiser in person.
What factors affect the replacement cost value of your home?
The factors that affect your home's replacement cost value fall into six categories. Whether you're using an online replacement cost estimator or figuring it out yourself, you'll have to figure all of these factors into your replacement cost calculation.
- Age: Different time periods have different standards and techniques for home building, which can affect your replacement cost in a variety of ways. For example, it may cost more to replace or match the construction materials of an older home as compared to a new construction home.
- Square footage: Bigger homes usually cost more to rebuild than smaller houses because they require more materials and labor. The larger your home, the higher its replacement cost is likely to be.
- House shape and style: More complex house shapes result in higher rebuilding costs. For example, a roof with multiple peaks will cost more to replace than a more simple style.
- Features and finishes: The quality and number of home features will affect your replacement cost. High-quality roof and flooring materials, an extra bathroom or a fireplace will result in a higher replacement cost.
- Home fixtures: The quality of home fixtures — like cabinets or countertops — can make a big impact on your replacement cost. The type of heating, cooling and electrical systems installed in your home will also influence the estimated cost of rebuilding your home.
- Foundation type: Whether your home is built on a concrete slab or crawl space, is raised off the ground or has a finished or unfinished basement will have an effect on how much it will cost to rebuild your house.
Why is replacement value important for home insurance?
Knowing the replacement cost of your home is important because it will help you choose the right dwelling coverage limit.
Having enough dwelling coverage will increase the likelihood that you'll receive enough money from your insurance company to rebuild your home if it's destroyed in a disaster. If your home is completely destroyed in a covered event — like a fire or windstorm — the difference between the cost to rebuild your home and your home insurance dwelling limit is what you'll pay for yourself.
You can't be sure your homeowners insurance will fully cover the cost to rebuild your home unless your dwelling limits are set at or above the replacement cost of your home.
How your dwelling limit affects out-of-pocket costs
Replacement cost | Dwelling limit | Out-of-pocket cost |
|---|---|---|
| $150,000 | $120,000 | $30,000 |
| $200,000 | $200,000 | $0 |
| $250,000 | $200,000 | $50,000 |
In addition to affecting your insurance coverage, your home's replacement cost value will influence the price of your policy. Your dwelling coverage limit is one of the main factors affecting the cost of homeowners insurance.
Replacement cost calculations are not a guarantee
Homeowners should get the best estimate possible of the cost to rebuild their home, but they should also realize that there is no guarantee it will ultimately be accurate.
For example, if a hurricane drives up construction costs for everyone in your region, the cost to rebuild a home may be much higher than your initial estimate.
Many home insurance companies offer homeowners the option to expand their coverage to protect themselves against rising costs. Two of those options are extended and guaranteed replacement cost policies, both of which are more expensive than a typical policy.
Actual cash value vs. replacement cost value
Not all home insurance policies will pay for damage based on your home's replacement cost. When you buy a policy, you'll generally have the option to choose between replacement cost value (RCV) and actual cash value (ACV). Unlike replacement cost policies, which reimburse you to rebuild a home of similar quality, actual cash value policies account for depreciation and wear and tear.
The 80% rule
Homes with replacement cost coverage must be insured for at least 80% of their replacement value.
If you choose dwelling coverage limits that are less than 80% of your home's replacement cost, you won't be guaranteed full reimbursement for damage to your home. Instead, your insurance company will only pay for a percentage of damage — the same ratio as your dwelling limits to the replacement cost.
For example, suppose your home has a replacement cost of $200,000. Your insured-to-value threshold would be 80% of $200,000, or $160,000.
Claim payout for $50,000 of fire damage
Dwelling coverage |
% of RCV
|
Claim payout
|
|---|---|---|
| $160,000 | 80% | $50,000 |
| $150,000 | 75% | $37,500 |
| $100,000 | 50% | $25,000 |
For this reason, we always recommend that homeowners choose a dwelling coverage limit that is at least 80% of the replacement value.
What is homeowners insurance replacement cost?
Replacement cost is the estimate of the cost to build a new home with the same style and materials as your old home. Your home's replacement cost will depend on a variety of factors like construction costs, square footage, the quality of materials used to build the home and home features.
Your home’s replacement cost is not the same as its selling price or market value.
That's because the sales price includes the value of your home, the land it's built upon and transactional sales costs. The cost of rebuilding the home, the replacement cost, is just one factor contributing to the market value of a home.
Frequently asked questions
How do you calculate replacement cost?
There are a few ways to calculate replacement cost. You can use an insurance company's home value estimator when you get a quote, use an online replacement cost calculator from an independent company, hire a professional appraiser or try calculating it yourself.
We recommend comparing a few different estimates to make sure you have an accurate number.
What is the 80% rule in homeowners insurance?
Most home insurance companies require you to insure your home for at least 80% of the cost to rebuild it if you have replacement cost coverage. If your home is insured for less than 80% of the replacement cost, the insurance company won't pay the full price to rebuild or repair your home.
What does replacement cost mean on homeowners insurance?
If your policy covers your home's replacement cost value, that means that the insurance company will pay claims based on the full price to rebuild your home or replace your things if they're damaged in a covered event, like a fire.
On the other hand, some insurance policies only cover your home or belongings based on their actual cash value, which includes wear and tear. That means you won't have enough money from the insurance company to cover the full cost to rebuild your home if it's destroyed.
Source
National Association of Home BuildersEditorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.