The Gardner Group Blog

How much would it cost to rebuild your home at today's prices?

Consider this...
You're talking with your insurance agent, who explains the coverage available under your homeowners policy. You're surprised to find out that the estimated replacement cost of your home is different from its purchase value. Why? Here is an explanation.

Purchase price vs. replacement cost

The appraisal industry bases its valuations on the availability of comparables to select the appropriate costs.  Appraisal-based cost data reflect typical labor efficiency, the cost of money, fees and many other items, which are not included in the basic costs of labor and materials.  They are designed to give accurate present-day costs that will form a sound foundation for the cost approach to valuation. Within the appraisal industry, the term "replacement cost" means the replacement cost of a building as the total cost of construction required to replace the subject building with a substitute of like or equal utility using current standards of materials and design. In the insurance industry, replacement cost and reconstruction cost mean the total cost of construction required to replace the building with one of like kind and quality, as quickly as possible, at an existing site.  The replacement cost of your home can be 30 percent to 40 percent higher than the cost of new construction. The difference is due to:

• No economies of scale
• Limited site access due to existing structure
• Increased wages for a labor force skilled in reconstruction
• Lost productivity from working within an existing site
• Replacing the home with the same materials and style that existed prior to loss

Farmers Computerized Dwelling Replacement Cost (CDRC) program

In the past, the most commonly used replacement cost methodology was the square foot method.  This method takes the measurements of the home, garage, and basement area, and then multiplies each by a specific amount (e.g., $50 x first floor square footage plus $35 x Garage Square Footage plus $20 x basement square footage = estimated minimum replacement cost for the dwelling).  It was designed when average home styles and features were more common and consistent.  More recently, companies, including Farmers, began using component-based systems to calculate the replacement costs of dwellings.  Instead of assuming that all homes of the same size and age require the same amount to rebuild, a component based system incorporates the actual features of an insured dwelling in the replacement-cost estimate.  Farmers contracted with Marshall & Swift to provide the core labor and material costs used by our Computerized Dwelling Replacement Cost (CDRC) program to calculate the minimum estimated replacement cost for your home.  Currently, Marshall & Swift monitors 2,621 locations in the United States. The labor and material cost information it provides helps estimate the cost to rebuild a house on its existing lot, as opposed to other systems that calculate the cost to build a new house on a vacant lot.

Determine the adequate amount of insurance for your property

As already mentioned, Farmers agents use the CDRC program to calculate the replacement cost
of your property. You advise your agent about the features/and components of your house, and he or she then inputs this information into the CDRC program. The program determines a replacement cost based on labor/and material costs for the features of your property.  It is very important that you provide accurate information about your property so that our CDRC program can calculate an adequate replacement cost estimate for your property. Once the replacement cost estimate is established, you can use it as a reference to determine the amount of insurance you need. 

I will be glad to speak with you at your convenience to discuss the construction details of your home and share with you the benefits of allowing Farmers to provide you with homeowners insurance.  If this sounds good to you, please give me a call at 1-866-380-9088 ext. 705 and I will give you - without obligation - a free comprehensive replacement estimate on your home.

Alycen Delrie
Agent