Let's start with replacement cost (also known as reconstruction cost). Before a loss has occurred, this refers to the amount of money it would take to rebuild your home or building from the ground up, using the same kind and quality of materials. This value takes into consideration today's costs, and we all know labor costs and the cost of materials nationally, continue to go up! The calculation is based on the structure only, and does not include the value of the land it sits on. The dwelling or building limit listed on your policy reflects the amount of coverage available to reconstruct your home or building based on the square footage and current costs to rebuild.

Then there is the taxable value of your home or building. This is a calculated value of what your house or building, as well as the land it sits on, might sell for in the current market. This assessed value is determined by the MT Department of Revenue, then multiplied by a property class rate set by the MT Legislature. The final calculation becomes the taxable value you are assessed for your property taxes on that home or building, every year.

And finally, the real estate market value (also known as current market value). This is the amount a buyer would be willing to pay for your house or building, including the land it sits on. It takes into account things like location, age of the structure, and what other homes or buildings in the area are being sold for. You've heard of "bidding wars" right? So, real estate market value is often higher than the replacement cost value on your policy.

There you have it in layman's terms, three separate values and three separate ways of calculating these values. Mystery solved!

Article By: Lennis Moore, Commercial Agent at Darnielle Insurance Agency