# replacement cost

## Replacement Cost (Real Estate) — Overview, How To Calculate

Replacement cost refers to the price that it would cost to replace an existing asset with a similar asset at the current market price.

The asset in question can be a real estate property, investment security, or account receivableAccounts ReceivableAccounts Receivable (AR) represents the credit sales of a business, which are not yet fully paid by its customers, a current asset on the balance sheet.

Companies allow their clients to pay at a reasonable, extended period of time, provided that the terms are agreed upon..

For example, if a building suffers from damage caused by a fire or terrorist activity, the replacement cost of the asset would refer to the pre-damaged condition of the asset.

The actual replacement cost is subject to change because a new asset would incur different costs than the original asset.

However, the replacement cost does not require to be a duplicate of the original asset, and it must serve the same purpose as the original asset.

### Quick Summary

• The replacement cost is the cost that an individual or entity would incur to replace an asset with a similar asset at the current market prices.
• For a damaged asset, the replacement cost for that asset takes into consideration the pre-damaged condition of the asset.
• Replacement costs are common in homeowner insurance policies to cover assets that are damaged or destroyed in a disaster, such as an earthquake, flood, or fire.

### How to Determine the Replacement Cost of a Building?

The process of determining an appropriate cost estimate of replacing a building is complex, and it requires various pieces of data and knowledge of construction in order to make an informed estimate.

When making a decision on the building to be replaced and the cost to be incurred, businesses use the net present value (NPV)Net Present Value (NPV)Net Present Value (NPV) is the value of all future cash flows (positive and negative) over the entire life of an investment discounted to the present.

NPV analysis is a form of intrinsic valuation and is used extensively across finance and accounting for determining the value of a business, investment security,. The NPV method is used to analyze the cash inflows and outflows in order to make a purchase decision.

It uses a discount rateDiscount RateIn corporate finance, a discount rate is the rate of return used to discount future cash flows back to their present value. This rate is often a company’s Weighted Average Cost of Capital (WACC), required rate of return, or the hurdle rate that investors expect to earn relative to the risk of the investment. to estimate the minimum rate of return on the asset.

Before making a purchase decision, the company must analyze both the cash outflows of the asset, as well as the inflows generated by the asset. The cash flows are adjusted to their present values using the discount rate to make them current. The difference between the present value of cash inflows and outflows informs the final decision.

If the difference is positive, it means that the asset is profitable, and the company can proceed with the purchase. However, if the difference is negative, it means that the value of outflows exceeds the inflows, and the company should not go ahead with the purchase.

### Accounting for Depreciation

When determining the replacement cost of an asset, a business must account for its depreciation to expense its cost over its useful life. To capitalize on an asset purchase, the cost of the new asset is posted to an asset account, and the account depreciated over the useful life of the asset.

Depreciation matches the expense of using the asset during its useful life and the revenue it generated. Businesses can use the straight line depreciation methodStraight Line DepreciationStraight line depreciation is the most commonly used and easiest method for allocating depreciation of an asset.

With the straight line method, the annual depreciation expense equals the cost of the asset minus the salvage value, divided by the useful life (# of years).

This guide has examples, formulas, explanations or the accelerated depreciation methodAccelerated DepreciationAccelerated depreciation is a depreciation method in which a capital asset reduces its book value at a faster (accelerated) rate than it would.

The straight-line depreciation method divides the cost of the asset over its useful life to get the annual depreciation cost, while the accelerated depreciation method recognizes more depreciation costs in the early years and less in the later years.

### Market Value vs. Replacement Cost

Market value and replacement cost are both distinct concepts that are used to estimate the value of a property. The market value is the price that a property will fetch in the open market between two parties, i.e., the buyer and the seller, who are both knowledgeable about the dynamics of the real estate market.

When estimating the market value of a property, parties include the value of the land and the value of site improvements to the land, less the accrued depreciation. A property’s market value is affected by several factors, such as location, crime rate, proximity to social amenities, etc.

On the other hand, replacement cost includes the estimated cost of constructing a building that is similar to the building being evaluated at the current prices. The method considers the prices of materials, labor, and special fees at the time of the valuation.

The replacement of the building uses current building designs and standards, as well as modern methods, which may differ from the cost of the building being appraised. It excludes other costs, such as demolition, debris removal, premiums for materials, site accessibility, etc.

### Replacement Cost in Insurance Policies

Replacement cost is included as part of a homeowner’s insurance policy to cover the damage caused to a policyholder’s assets. The policyholders must make sure that the definition of the asset insured is clear. It is because the insurance company commits to pay the policyholder the replacement cost of covered assets if they are destroyed, stolen, or damaged.

Most insurance policies include a clause in the insurance policy that states that the lost asset(s) must be replaced or repaired before they can pay the replacement cost.

Insurers do it to avoid over-insurance, where an insured party engages in a moral hazardMoral HazardMoral hazard refers to the situation that arises when an individual has the chance to take advantage of a deal or situation, knowing that all the risks and, such as arson, to make a false claim and profit from the loss.

Due to the constant fluctuation of the cost of labor and materials, insured parties should regularly review their homeowner’s policy to ensure that the replacement cost is enough to cover them from loss, should a disaster occur.

If a policyholder is underinsured, i.e., the insurance coverage is insufficient to cover the replacement cost of the assets damaged in a qualified disaster, they may be required to incur huge out-of-pocket costs for the uninsured assets.

CFI offers the Certified Banking & Credit Analyst (CBCA)™CBCA™ CertificationThe Certified Banking & Credit Analyst (CBCA)™ accreditation is a global standard for credit analysts that covers finance, accounting, credit analysis, cash flow analysis, covenant modeling, loan repayments, and more. certification program for those looking to take their careers to the next level. To keep learning and developing your knowledge base, please explore the additional relevant resources below:

• Current Income (Real Estate)Current Income (Real Estate Investments)Current income is an investment strategy that gives investors exposure to consistent above-average payouts. The most common current income-focused
• Depreciation MethodsDepreciation MethodsThe most common types of depreciation methods include straight-line, double declining balance, units of production, and sum of years digits. There are various formulas for calculating depreciation of an asset. Depreciation expense is used in accounting to allocate the cost of a tangible asset over its useful life.
• Life Cycle Cost AnalysisLife Cycle Cost AnalysisLife cycle cost analysis (LCCA) is an approach used to assess the total cost of owning a facility or running a project. LCCA considers all the costs associated with obtaining, owning, and disposing of an investment.
• Real Estate Financial ModelingReal Estate Financial Modeling

Источник: https://corporatefinanceinstitute.com/resources/knowledge/valuation/replacement-cost-real-estate/

## Replacement Value Method of Equity Valuation

Replacement value method takes into account ‘the amount required to replace the existing company’ as the valuation of a company.

In other words, if one is to create a similar company in the same industry; all costs required to do so will form part of the value of the firm.

This is also called as “Substantial Value”. Let us now understand this topic with the help of an example.

### Replacement Value Method Example

Sample Balance Sheet (Table I)

 Liabilities \$ (Mio) Assets \$ (Mio) Equity Share Capital 1500 Fixed Assets 3000 Preference Share Capital 600 Inventories 1350 Reserves and Surplus 300 Cash and Bank Balance 150 Long-term Debt 900 Debtors 300 Short-term Debt 300 Creditors 1200 Total 4800 Total 4800

 Book Value Calculation \$ Mio Total Assets 4800 Less Long-Term Debt 900 Less Short Term Debt 300 Less Creditors 1200 Book Value 2400

As per the table above, the book value comes out to be \$ 2400 Mio.

In the same case, let us calculate the replacement cost, given the following assumptions:

1. 20% of the fixed assets are unused.
2. The market value of the assets is 50% higher than the accounting value carried in the balance sheet.

The replacement cost adjusted balance sheet will now have fixed assets value as follows:

 Fixed Assets \$ Mio Original carrying cost 3000 Less: Unused Assets (20%) 600 Balance Fixed Assets 2400 After revaluation (at 150%) 3600

The asset value has therefore increased by \$ 600 Mio i.e. (\$ 3600 Mio less \$ 3000 Mio)

Replacement Cost Adjusted Balance Sheet (Table II)

 Liabilities \$ (Mio) Assets \$ (Mio) Equity Share Capital 1500 Fixed Assets 3600 Preference Share Capital 600 Inventories 1350 Reserves and Surplus 300 Cash and Bank Balance 150 Adjustment 600 Debtors 300 Long-term Debt 900 Short-term Debt 300 Creditors 1200 Total 5400 Total 5400

### Replacement Cost Value Calculation using following Formula

(Table III)

 Replacement Cost Value Calculation \$ Mio Total Assets (now higher) 5400 Less Long-Term Debt 900 Less Short Term Debt 300 Less Creditors 1200 Replacement Cost Value or Net Substantial Value 3000

Hence, as per the replacement value method, the value of the company is \$3000 Mio (refer to Table III). Let us now have a look at different types of substantial value using the same example.

### Gross Substantial Value

It is the total asset value at replacement value which in our example will be \$ 5400 Mio (see “Table I” assets side total)

### Net Substantial Value

It is the replacement cost value the replacement value for adjusted balance sheet which in our example will be \$ 3000 Mio (See Table III)

### Reduced Gross Substantial Value

It is the total asset value less cost-free debt (Here, creditors) which in our example will be \$ 5400 Mio less \$ 1200 Mio (creditors) = \$ 4200 Mio.

We shall now compare and understand the Liquidation Value Method v/s Replacement Cost Method (substantial value).

### Comparison between Liquidation and Replacement Value Method

• Replacement cost method of equity valuation assumes that the company continues to operate as against shutting down of business. Whereas liquidation value method of equity valuation assumes that the company will be shutting down its business and hence the value of the company under this method will be its salvage value.
• In the case of replacement cost method, generally, replacement cost excludes those assets which are not being used by the company for its daily operations; while in the case of liquidation value method all assets are taken into consideration.
• Liquidation value method may be prone to distress pricing which is not the case with replacement cost method.

Conclusion

Replacement value method is the more refined way of calculating the value of the company; however, it comes with the drawback of incorrect estimation. The use of replacement value method will be incomplete if we do not compare it with Q ratio, which is also called Tobin’s Q.

Using Q ratio replacement cost adds value to the investment decision process.1,2

Company valuation methods. media.iese.edu. August 2019. [PDF]C. Spaulding W. Equity Valuation: Book Value, Liquidation Value, and the Q Ratio. thismatter.com. August 2019.

[Source]

Last updated on : August 27th, 2019

Источник: https://efinancemanagement.com/investment-decisions/replacement-value-method-of-equity-valuation

## Replacement Cost (Definition, Examples)| What is Replacement Cost?

Replacement cost is a cost that is required to replace any existing asset having similar characteristics.

An organization often chooses to replace its assets when the repair and maintenance costs increase beyond an acceptable level over a period of time. The company involves the insurance company to do the needful.

It is found out by calculating the present value of the asset, followed by its useful life.

The insurance company’s primary function is to evaluate whether the decision of replacement is better than repair and maintenance or not.

It is also vital for a company to correctly calculate the depreciation since it will have a significant impact on the decision of the continuation of the old asset or replacement with a new one.

Sometimes it becomes a challenge to estimate the correct market value of the asset, and hence it may lead to making wrong decisions by the organization.

### Example #1

• Suppose a company bought machinery for \$ 2,500 ten years ago. The present value of the machinery is \$1,000 after depreciation. Suppose, the replacement cost for that machinery comes out to be \$2,000. Now the company has to decide that it is a good idea to replace the machinery and buy a new one or to continue with the old one.
• In this case, the management should replace the machinery since it will add value to the business in the future.
• A company is using its machinery for several years, and the book value of the asset is \$ 5,000. The remaining useful life of the asset is 2 years now if, after 2 years, the asset value becomes \$ 8,000, and the discount rate is 5%, the present value of the replacement cost will be \$ 8,000 / (1.05)*(1.05) = \$ 7,256.

### Example #2

• A company is in the transport business. They own several trucks and vans. On one fate day, while delivering the goods, the truck got heavily damaged. The company claimed the insured amount from the insurance company since the truck was insured with them. The insurance company after an investigation found that the truck was \$ 15,000 2 years ago, now the same truck in the market with the same feature, and the company is valued for \$ 20,000 today.
• Therefore the replacement cost is \$ 20,000. But there is a twist if a similar truck in the market is valued for \$13,000; the insurance company will only pay \$ 13,000 and not the one as decided by the company. Therefore for the insurance company, the replacement cost will be the lowest cost possible for any asset available in the market with similar features and utility.

• It is a very simple technique and can be adopted by anyone with little knowledge of profit and loss.
• The company can estimate the present value and depreciation and then can decide whether the asset needs replacement or not.
• They also help the organization in cost budgeting and hence maintain a healthy financial practice to plan the finances in advance so that the company can get benefit from the same.
• It helps the insurance company to settle for the claims. The coverage of the replacement cost is made in such a way that the policyholder will not be at a loss, and the assured sum will be equivalent to the asset, which is to be replaced.
• It also helps in finding the labor-intensive replacements for the company. The hr policy of the organist ion also considers the replacement technique to arrive at a conclusion.
• The company may use the replacement cost to increase its valuation. The historical cost if calculating any tangible asset will also be less than its replacement cost, so the company may use it to enhance the balance sheet figure of the asset.

• The premium which an insurance company demands is usually higher. Therefore it is challenging for the policyholder to pay such premiums to get their assets insured.
• The replacement cost for the insured assets if the damage is determined with the lowest price possible; therefore, sometimes it is challenging for the company to cope up with the loss.
• If any company is following replacement cost basis to get their claims settled from the insurance company, then they may have to settle for the loss as well because the lesser amount of the asset is usually settled, but if the company intends to follow the actual cash value of the asset then the company will be in a neutral position.
• It is not at all helpful in valuing certain items antiques, etc., for that some special treatment is required.
• This cost depends on many factors. E.g., market condition, change in demand, asset’s useful lives, etc.. Therefore, these conditions should be there to get correct replacement value, and all these factors are not always available with the organization.
• The current market value of inventories is not available for any organization. Therefore, the replacement valuation does not help here. The inventories valuation keeps the unrealized profits and loss calculation after the close of the balance sheet.

### Conclusion

The replacement cost technique is beneficial for those who can take advantage of the same. This method is not helpful for those businesses where the current market price is not available.

The insurance company makes use of this type of technique to find out the replacement cost of the asset, which is considered.

The policy is designed in such a way that the policyholder gets some kind of benefit from the insurance companies, but sometimes the settlement of the claims is done with a lesser amount than the actual value of the asset.

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The company should make a wise decision by carefully calculating this cost by comparing its repair and maintenance cost, which can be levied over the years if the asset is not replaced.

This article has been a guide to what replacement cost is and its definition. Here we discuss examples of replacement costs related to insurance companies along with advantages and disadvantages. You can learn more about investment from the following articles –

• Coinsurance
• Contra Asset Account
• Wasting Asset
• Wash Sale Rule

Источник: https://www.wallstreetmojo.com/replacement-cost/

## Перевод — replacement cost — с английского — на русский

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## Replacement Cost | How to Calculate the Replacement Cost of a Firm?

Replacement cost is the cost to either build the same building or to replace a machine with the same capacity as a new one. For a manufacturing unit to run its daily operation, it needs machinery. The output of the machinery decides the overall production of the firm. It is very crucial for a firm to estimate the cost of producing the same units with a recent cost of machinery

Explanation: The most practical or theoretically correct cost to estimate the smooth running of the business is the replacement cost. This cost tells you the exact cost that you will need in case you want to maintain the same production capacity.

The case of Real Estates helps you to gauge the exact cost that will be needed to build up the same building today. The Replacement cost estimate for the property assumes that the building is new and has no obsolescence.

It is helpful when you are selling an old building which needs a few repairs. So the person who will be buying it will calculate the replacement cost first.

So he got the value of the new building, now he will deduct the charges of repair that the old building needs and will finally come to a value that he will be ready to pay for the old building.

### How to Calculate the Replacement Cost of a Firm?

Suppose there is a small manufacturing firm situated in a remote area within one building. How will you calculate the replacement cost?

Say the building from where the firm operates is 50 years old. The firm bought the building back then by paying \$5,000. So to make the exact same building now the cost will be \$15,000. So \$15,000 is the replacement cost of the building.

Similarly, the replacement cost of all the machinery is \$6,000. So to replace the firm today you will be needing (\$15,000 + \$6,000 = \$21,000)

### Replacement Cost vs Market Value

Market value is the price that is determined in the market considering the demand and supply. If there is a machine whose cost was \$500 and is used for 5 years and has 3 years remaining, it may have a market value of \$200. So it means the market is ready to pay \$200 for an old machine that is being used for 3 years.

The replacement cost is entirely different. It is what will be the cost of another new machine that will have the exact same capacity as the old machine.

So obviously the cost will be more than \$500 because \$500 was charged 5 years back, now the prices may have gone up.

So market value is the value of the asset in market and replacement cost is the cost that will be incurred to replace the old asset with a new one now.

### Benefits of Replacement Cost

Some of the benefits are given below:

• It helps in Real estate market by giving a base in the valuation of Old buildings which are really difficult to value otherwise
• It helps in capital budgeting where the cost and benefit analysis is done the replacement cost of machines for continuation or expansion of projects

### Drawbacks of Replacement Cost

Some of the drawbacks are given below:

• Replacement cost gives the value of the new building. It doesn’t consider depreciation cost and other damages that the building has undergone
• Replacement cost gives a picture considering the current economic condition. If due to some reason the economy is going through high inflation phase which will recover in a few months, then replacement cost will not provide a proper picture and a project may be rejected considering high replacement cost

## How To Estimate The Replacement Cost Of Your Home

When shopping for a homeowners insurance policy, the main decision you'll need to make is how much coverage you want to purchase for your dwelling. We recommend you purchase enough coverage to cover the costs to rebuild your house, also called its replacement cost.

Estimating replacement cost can be done with house value calculators, a professional appraisal or even by your own computation.

Purchasing dwelling coverage at a level sufficient enough to completely rebuild your home will ensure you are completely covered by your home insurer in the unfortunate event of a total loss, in which your home is completely destroyed.

### What is Replacement Cost?

Replacement cost is the estimate of the price of rebuilding a new home that is of and kind quality to your old home. Replacement cost will depend upon a variety of factors, including construction costs, square footage, the quality of materials used to build the home and home features.

It's important to understand that replacement cost of your home is not the same as the market value of your home. The market value of your home is the selling price of your home. But this number incorporates more than just the value of the home itself.

It includes the value of the land it's built upon, any improvements made to the land itself and transactional sales costs, such as the profit made on selling the property.

The cost of building the home, the replacement cost, is just one factor contributing to the market value of a home.

### Why is Knowing the Replacement Value of Your House Important for Homeowners Insurance?

When you're buying homeowners insurance, the main coverage feature you're looking for is dwelling coverage, or Coverage A.

Knowing the replacement cost of your home is important because it will help you select appropriate limits for your dwelling coverage, increasing the lihood you'll receive sufficient reimbursement from your insurer to rebuild your home if you make a claim.

For example, say your home has a replacement cost value of \$150,000, but you selected a Coverage A limit of \$120,000 on your homeowners insurance policy.

If your home is destroyed by a covered event—such as a fire or a windstorm—your insurer will only cover your dwelling up to your selected limit.

That means you'll have to cover the remaining \$30,000 of rebuilding costs to your home your own pocket.

### If your home is completely destroyed, the difference between the cost to rebuild your home and your home insurance dwelling limit is what you'll pay pocket

Replacement costHome insurance dwelling limit pocket costs
\$150,000\$120,000\$30,000
\$200,000\$200,000\$0
\$250,000\$200,000\$50,000

You can't be sure your homeowners insurance fully covers you unless your limits are set at or above the replacement cost of your home. If your policy limits are not high enough to cover you in the event of a total loss, you're underinsured. However, homeowners should also know that the cost to build a home is not fixed, and even an accurate assessment of replacement cost at one time may not hold true in the future.

About two in every three homes in the country are underinsured, according to Nationwide.

Determining your home's replacement cost is an important step toward increasing the chances your home insurance provides adequate coverage.

In addition, it can greatly affect 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 seek 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 devastating hurricane drives up construction costs for everyone in your region, the cost to rebuild a home may be far higher than an initial estimate current labor costs and construction material prices.

On the other hand, home insurance companies often do offer policyholders options to expand their protection and create a buffer against rising costs. Two of those options are extended or guaranteed replacement cost policies, both of which are more expensive than a typical replacement cost policy.

An extended replacement cost policy will cover you up to a certain percentage above your dwelling limit. For example, if you have a 25% extended replacement cost policy with \$200,000 in dwelling coverage, your insurer will cover you for rebuilding costs up to \$250,000, or 25% more than \$200,000.

A guaranteed replacement cost policy will reimburse you in full to rebuild your home, no matter the cost. This is the safest option, and the one with the highest premiums, but it may not be available in all states and is not offered by all insurers.

### Actual Cash Value Versus Replacement Cost Value

It's important to be aware that not all home insurance policies will value your home at replacement cost value (RCV).

When you buy a policy, you'll generally have the option to choose between RCV and actual cash value (ACV).

Whereas RCV policies will reimburse you to rebuild a home of similar quality in today's market, ACV policies account for depreciation and wear and tear.

Consider a simplified example. Imagine your home cost \$200,000 to build at the time of purchase, and the materials used to construct it have a lifespan of approximately 50 years.

After 25 years, the dwelling is considered halfway through its lifespan, and its materials have depreciated to half their original value. In the event of a total loss of your home, your insurer would reimburse you for \$100,000, half the original value.

ACV policies are cheaper but will leave you with higher out-of-pocket costs in the event your home or property is damaged or destroyed.

While RCV coverage is more expensive, it will give you the security of knowing you'll be fully reimbursed for damage to your home, up to your policy limits.

The exceptions to this rule are policies that do not reach an 80% insured-to-value threshold. This threshold—common among home insurance policies—requires your dwelling coverage limits to be at least 80% of your home's replacement cost.

If they're not, you won't be guaranteed full reimbursement for damages to your home.

For example, suppose your home has a replacement cost of \$200,000. In this scenario, your insured-to-value threshold would be 80% of \$200,000, or \$160,000. If you pick dwelling limits of \$160,000 or above, you'll be fully covered for any claim you make to your insurer below that number. So \$50,000 in fire damage would be paid in full by your home insurance company.

How insurance covers you if you're at or above the 80% threshold
Replacement cost\$200,000
80% threshold\$160,000
Dwelling limits\$160,000 (at the 80% threshold)
Fire damage cost\$50,000
Insurer reimbursement\$50,000 in full (minus your deductible)

However, if your dwelling limit is below the 80% of insured-to-value threshold, your insurer will pay for damage at the same ratio as your chosen limits to the threshold. In the same scenario, if you pick dwelling limits of \$120,000, you are covered for 75% of the \$160,000 threshold. Now, your homeowners insurance policy will only cover 75% of the \$50,000 in fire damage, or \$37,500.

How insurance covers you if you're below the 80% threshold
Replacement cost\$200,000
80% threshold\$160,000
Dwelling limits\$120,000 (only 75% of the threshold)
Fire damage cost\$50,000
Insurer reimbursement\$37,500 (only 75% of fire damage costs, minus your deductible)

If homeowners don't want to pick policy limits as high as the replacement value of their home, they should still make sure limits are at least 80% of the replacement value.

### How to Calculate the Replacement Cost of Your Home

There are a variety of ways to calculate how much it costs to rebuild a house, and obtaining more accurate estimates will require greater effort by you, the homeowner. But considering the need to appropriately value a house for insurance purposes, every home insurance shopper should use at least one of these resources to obtain an accurate home insurance replacement cost.

### Methods to calculate replacement cost

• Obtaining an insurer appraisal
• Obtaining an estimate from an online replacement cost calculator
• Hiring a professional appraiser
• Doing the math yourself

Given the importance of an accurate replacement cost value in setting your home insurance limits, we recommend not relying solely on insurer estimates of your home's replacement value. Incorporating an alternate approach and obtaining a third-party—or your own—estimate of your home's value will increase your confidence that you've selected the correct dwelling coverage limits.

### Obtaining an Insurer Appraisal

An insurer often uses its own proprietary technology—or third-party technology—to estimate the replacement cost of homes it insures. For example, if you get a homeowners insurance quote from State Farm, it will use a replacement cost estimator for home insurance calculated by 360Value, a tool created by Verisk Analytics.

This method is probably the easiest way to estimate the replacement cost of your home, but it won't be reliable as an in-person appraisal.

These analytical tools calculate your replacement cost inputs entered by you and by construction costs sourced by the creator of the tool.

If you do plan to rely on an insurer estimate, be sure to compare estimates of multiple insurers before committing to a replacement cost value.

### Obtaining an Estimate from an Online Replacement Cost Calculator

There are several independent companies offering replacement cost estimates online, but any one estimate shouldn't be trusted any more than an insurance company appraisal.

These replacement cost estimators are available for free or for a one-time price or subscription fee. Examples of websites offering home replacement value calculators include the Craftsman Building Cost Calculator and BlueHammer Home Report.

Users should know that an independent dwelling cost estimator may not necessarily be more accurate than an insurer's tool, as the calculator will use similar questions and rely on the accuracy of user inputs to make an estimate.

And an insurer calculation, it will rely on data sourced by the creator of the tool that is not guaranteed to be an accurate reflection of construction costs in your location.

However, it will provide a third-party assessment of your home's replacement value that you can compare to the estimate provided by your insurer, giving you another comparison point for making an informed decision.

### Hiring a Professional Appraiser

The most costly option—but also the one most ly to yield accurate results—is to hire a professional appraiser. A professional appraiser can provide a qualified opinion on the replacement cost of your home and is licensed or certified state standards.

A professional appraiser will examine all the factors inputted into a replacement cost calculator but will collect the data through an in-person inspection, adding an extra degree of thoroughness and detail to the process. However, you will pay an added fee in exchange for this increased scrutiny. Professional appraisal prices can vary widely depending on where you live but are generally in the order of several hundred dollars.

### Doing the Math Yourself

The final option—and the most involved in terms of personal time investment—is to estimate replacement cost yourself. In this instance, you'll be trading your own labor for a free home replacement cost calculation.

However, this method risks an estimate that is far less accurate than those of professionals.

Doing the math yourself requires you to estimate the cost per square foot of your home local construction costs and to factor in the cost of a variety of other home features such as your roof, flooring, fixtures, siding material and more.

This process may require sourcing pricing from a variety of vendors such as roofing companies, who will have a qualified assessment on what parts of your home will cost.

Calculating replacement cost by yourself is a free and educational exercise, but we would recommend getting some form of formal appraisal too, whether it's through an online calculator or a professional appraiser in person.

### What Factors Affect the Replacement Cost Value of Your Home?

A variety of factors contribute to the replacement cost value of your home.

To generalize, these factors fall under five categorizations: age, square footage, house shape and style, features and finishes and home fixtures.

Whether you're using an online replacement cost estimator or figuring it out yourself, you'll have to incorporate all these factors into your replacement cost calculation.

FactorContribution to replacement cost
AgeDifferent time periods have different standards and techniques for home building. The age of your home reflects these standards and can affect your replacement cost in a variety of ways.
Square footageBigger homes cost more to rebuild, all else equal. The larger your home, the higher its replacement cost is ly to be.
House shape and styleMore complex house shapes result in higher rebuilding costs. For example, homes with many corners are ly to have a higher replacement cost.
Features and finishesThe quality and breadth of home features will affect your replacement cost. For example, high-quality roof and flooring materials will result in higher replacement cost.
Home fixturesThe quality of home fixtures—such as cabinets or countertops—can greatly affect replacement cost. The type of heating, cooling and electrical systems installed in your home can also influence the estimated cost of rebuilding your home.

Источник: https://www.valuepenguin.com/homeowners-insurance-replacement-cost-estimator