Replacement Cost While market value is defined as the cost someone is willing to pay for a property, the insurance industry covers your building based on the answer to the question: If there were to be a total loss, how much would it
should be insured for. But that is not the case.
what you would have paid for that same property today. Because the market value of any property fluctuates based on external factors that aren’t intrinsically tied to any given building’s physical characteristics, it’s next to impossible to insure a building based on that number. Along with that, the entire point of insurance is to make you whole again after a loss.
As a surprise to no one, the housing market right now is hot, not only due to historically low interest rates, but also due to a reduced need to live close to a physical workplace now that COVID has upended the way most of us work. But the supply is lower, so the values of the properties available are higher. All things being equal, this means that what you paid for your property this time last year is likely much lower than
cost to rebuild the structure the way it stands today?
For most property owners, what is the best way to
insure a property? Replacement Cost!
Market Value Factors
Replacement Cost Factors
Type of materials used
Supply and Demand
Cost of materials
Building size, condition, and features
Cost of labor
Size and value of land
Cost of clean-up
School district (if residential)
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