home insurance Frisco Texas

Home Insurance

Why Is My Home Insurance Replacement Cost Higher Than Market Value?

Many people ask why their Frisco TX home insurance policy mandates that their house is insured for a value that is higher than what their house is appraised for.  What many folks fail to realize is the difference between replacement cost and market value.

Replacement Cost

Replacement cost is the average cost for labor and materials to rebuild, or reconstruct, a particular house in the event of a total loss, after removal of debris.  This cost is usually higher than what a house was purchased for, or would sell for.

Market Value

Market value, or appraised value, is what a house should sell for, and is based on the demand for a property.  The price someone is willing to pay for a house (market value), is tied to many items such as proximately to shopping malls, restaurants, and the quality of the local school systems.

Rebuilding From Scratch

When a house is rebuilt from scratch, all of the contractors will charge for quantity one pricing, which is a higher cost than for quantity pricing.  When the developer of the neighborhood first built the homes, they had contractors bid on quantity pricing.  An electrician, roofer, plumber and framer will charge a much lower rate for quantity 200 home pricing versus a single home being rebuilt.  These factors of labor and materials go into the replacement cost of a home.

How Do I Make Sure My Home Is Insured Properly?

There are several sources you can check with, to make sure your home is insured for the proper replacement cost coverage.

  1. Check with your insurance agent. Insurance agents can go over the details of your house, and discuss any unique features.
  2. Consult with a general contractor. Many contractors rebuild houses for a living. Checking with them will help you understand the average cost for labor and materials in your state.

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