How to Calculate the Rebuild Costs of a House

Barbara Bellesi Zito
Updated June 17, 2022
A contractor in front of a new construction
Photo: rh2010 / Adobe Stock

Highlights

  • The rebuild cost of your home is the amount it takes to rebuild the entire structure.

  • This figure is important for obtaining proper homeowner’s insurance coverage.

  • Supplies make up 60% of the rebuild cost—and costs are on the rise.

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It’s never fun to dwell on a potential disaster involving your home. That’s why homeowner’s insurance serves as a safety net for your biggest investment. 

To ensure that your insurance policy offers enough coverage, you’ll need to know the rebuilding cost of your home, which is the dollar amount needed to replace the entire home should you have to rebuild after a hurricane, fire, or other catastrophic events. Let’s take a look at how to calculate your home’s rebuild cost to set you up for success.

What is Replacement Cost Value?

The rebuild cost, also known as replacement cost value (RCV) of your home, is the estimated cost of reconstructing it using the same type and quality of building materials in your current home. 

Keep in mind that the rebuild cost, which includes the cost to demolish the house, is not based on what you originally paid for the home or its current market value. That’s because those figures are based on various factors, including land value, property taxes, and comparable home values—none of which matters in the rebuilding of the actual structure of your home. 

Replacement Value Cost Vs. Actual Cash Value 

There’s another figure that you should be aware of when it comes to getting reimbursed by your homeowner’s insurance in the event of property damage—actual cash value. 

While the replacement cost is the dollar amount needed to rebuild your home and replace any lost or damaged items, it does not reflect any depreciation in value of those items. That means that your reimbursement is based on the current market value of the items. So, if items have gone up in price—which they likely have due to inflation—you’ll still be covered at the current cost.

On the other hand, the actual cash value is calculated after taking depreciation into account. The insurance company will evaluate the lifespan of every item and deduct a percentage of the purchase cost for each year you’ve owned it to show its depreciation.

If your homeowner’s policy is based on actual cash value instead of replacement value, it’s important to understand that you’ll receive less money for the purposes of rebuilding your home.

How to Determine the Rebuild Cost

There are several ways to calculate your home’s rebuild cost estimate.

Hire an Appraiser

While the cost will come out of your own pocket, hiring a home appraiser will give you a sure estimate of your home’s rebuild cost. An appraiser will assess your home’s architectural structure and home features based on current rebuild costs. However, it’s important to note that the rebuild cost will differ from the market value appraisal, which an appraiser would calculate for you if you were selling or refinancing your home.

Research Local Home Building Costs

You can research construction industry groups in your area that might list the current costs per square foot to build a new house. To estimate your rebuild cost, take the average cost per square foot and multiply it by the number of square feet in your current home. Note that  building supplies, design fees, and permits make up about 60% of the cost of building a home, with the rest spent on labor. However, the cost to build a new home tends to fluctuate greatly, and it’s heavily dependent on the availability of building materials and contractors. 

Calculate the Cost of Your Home’s Features

Your insurance company is also an excellent resource for determining rebuild costs. It likely uses a computer software program to calculate home value based on information provided about the construction of your home. Your insurance company will use details about the following home features to estimate the rebuild cost value:

  • Type of home construction and foundation

  • Type of roofing materials and siding

  • Year built and year last renovated

  • Number of stories and total square footage

  • Height of walls (if non-standard)

  • Garage type and size 

  • Age and type of HVAC system

  • Interior features, including flooring and cabinetry

  • Exterior features, including decks and patios

Rebuild Costs and Homeowner’s Insurance

A woman looks at an estimate
Photo: fizkes / Adobe Stock

While the experience of living in your home might be priceless to you, you’ll have to narrow it down to a more exact figure to figure out how much insurance to get as part of your homeowner’s policy. 

An insurance company can help you estimate the rebuild costs, but it pays to hire an appraiser to provide additional data. The insight of a third-party professional will give you more peace of mind that you’ll be living in an adequately insured home. For example, if your home has an RCV of $200,000 but your coverage limit is $180,000, you will have to pay $20,000 out of pocket if you must rebuild your home.

Underestimating Your Home’s Replacement Cost

As a homeowner, you don’t want to be underinsured. Otherwise, you’ll be on the hook for what could turn out to be quite a bit of cash if you have to rebuild your home in the wake of a disastrous event. 

But it can be difficult to get a truly accurate replacement cost for your home—plus it could fluctuate as time goes on and building supply materials change in price. For example, suppose a tornado affected numerous homes in your area. In that case, construction costs will likely increase, meaning that initial rebuild cost calculation will be lower than what it will actually cost.

Overestimating Your Home’s Replacement Cost

At first, it might seem like a good idea to overestimate your home’s rebuild cost to have more than sufficient coverage in your homeowner’s policy. However, you’ll spend hundreds or thousands of dollars more on insurance you don’t need. That’s why it’s essential to estimate your home’s replacement cost as accurately as possible to avoid overpaying.

Options for Additional Homeowners Insurance Coverage

As a homeowner, you have two options for additional coverage:

  • Extended replacement cost policy: This policy covers your home up to a certain percentage above the dwelling limit. For example, if you have $300,000 in dwelling coverage with a 20% extended replacement cost policy, you will be able to get $375,000 for rebuild costs.

  • Guaranteed replacement option: This policy lives up to its name. If you have to rebuild your home, you’ll get fully reimbursed. However, this policy is much more expensive, plus it’s not available in all states or with all insurance companies. 

Is it Better to Renovate or Demolish and Rebuild Your Home?

In the event of a disaster, enlist the advice of an experienced home builder near you to determine whether it’s possible to renovate your entire home or if you must rebuild it completely. Depending on the damage, it might not be safe to rebuild on a structure or foundation that has been compromised. In that case, it’s safer to demolish and rebuild your home than renovate a dangerous one.

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