Skip to ContentSkip to Footer

Replacement Cost vs. Market Value: What's the Difference?


If you were asked to describe the state of the housing market over the past few years, it could be summarized in one word: expensive.

According to Home Bay, a real estate education platform, U.S. home prices increased an astounding 42% in the three years between March 2020 and March 2023.

That data also showed that the national median home price rose to $468,000 as of 2022, up from $329,000 in 2020. With this massive fluctuation in real estate values, you may be wondering if your homeowners insurance is still providing the right level of protection.

The answer, of course, will depend on your specific homeowners policy. But there’s one factor that can make a big difference in the event of a major claim — whether your home is insured using market value or replacement cost.

What is market value?

The market value of your home is based on what your house and land would sell for on the real estate market. It’s essentially an appraisal of how much your home would be worth if you had to buy it from a realtor today.

A home’s market value is based, in part, on the size and condition of the house. But it’s also influenced by a number of other factors — including your neighborhood, school district and the overall real estate market in your area.

What is replacement cost?

A homeowners policy based on replacement cost means your home is insured using an estimate of what it would cost to repair or rebuild your home with materials of like kind and quality in the event of a total loss. Unlike your home’s market value, the replacement cost will not vary because of where you live or what similar homes are selling for. Instead, replacement cost is calculated on factors like the cost of building materials and construction contractors.

What’s the difference between market value and replacement cost?

Here’s an example to help you understand how these two types of coverages would play out in the event of a claim.

Let’s say your home has a market value of $250,000. But at the current rates of construction and materials, it would cost $300,000 to rebuild it in the event of a total loss — like a fire or natural disaster.

If your home was insured using its market value, you’d be left with a $50,000 coverage gap. In this case, your options would be to build a smaller, less expensive home, or pay out-of-pocket for the difference.

What is Guaranteed Replacement Cost?

Whether the value of your homeowners policy is calculated using market value or replacement cost, the amount your home is insured for will be listed as the limit on your policy Declarations.

But sometimes, even the best estimates can come up short. That’s why we offer Guaranteed Replacement Cost1 coverage. If your homeowners policy includes Guaranteed Replacement Cost, we will pay to rebuild your home with materials of like kind and quality without limiting it to the amount of coverage listed on the policy Declarations. That means if it’s a covered loss and costs run high, we will pay whatever the difference is.

It’s also worth noting that this coverage requires any home improvement over $5,000 to be reported to your agent within 90 days. So be sure to tell your agent about any recent home improvement projects.

Get the protection you deserve

With Guaranteed Replacement Cost, you can rest easy knowing your coverage will go the distance. Because unlike other types of homeowners policies that subtract for wear and tear or depreciation, we pay the full cost of rebuilding your home back to its former glory.

Ask one of our agents about Guaranteed Replacement Cost coverage today — and get the peace of mind you deserve.

ERIE® insurance products and services are provided by one or more of the following insurers: Erie Insurance Exchange, Erie Insurance Company, Erie Insurance Property & Casualty Company, Flagship City Insurance Company and Erie Family Life Insurance Company (home offices: Erie, Pennsylvania) or Erie Insurance Company of New York (home office: Rochester, New York).  The companies within the Erie Insurance Group are not licensed to operate in all states. Refer to the company licensure and states of operation information.

The insurance products and rates, if applicable, described in this blog are in effect as of January 2024 and may be changed at any time. 

Insurance products are subject to terms, conditions and exclusions not described in this blog. The policy contains the specific details of the coverages, terms, conditions and exclusions. 

The insurance products and services described in this blog are not offered in all states.  ERIE life insurance and annuity products are not available in New York.  ERIE Medicare supplement products are not available in the District of Columbia or New York.  ERIE long term care products are not available in the District of Columbia and New York. 

Eligibility will be determined at the time of application based upon applicable underwriting guidelines and rules in effect at that time.

Your ERIE agent can offer you practical guidance and answer questions you may have before you buy.

Get A Quote

* indicates required fields

This field is for validation purposes and should be left unchanged.

Customer Reviews

We feel like we truly have a friend in the business and could not be happier.

Kris L

Great insurance agancy, run by great people.

Richard S

If your looking to get better coverage give them a call I highly recommend them!

Fred S

Great family business that cares and gives back to the community.

John O

We feel like we truly have a friend in the business and could not be happier.

Lisa A