Quick Answer — How Do You Calculate Replacement Cost?
Multiply finished living area by a local construction cost per square foot, add the garage and basement at a fraction of that rate, add anything custom, then allow for debris removal and demolition. The national average single-family construction cost reported by the National Association of Home Builders is around $162 per square foot, ranging from roughly $154 in the cheapest states to over $230 in the most expensive.
A 2,200 sq ft standard-quality home with a 440 sq ft garage, $15,000 of special features, at the national average rate:
- Living area — $356,400
- Garage — $28,512
- Special features — $15,000
- Debris removal at 5% — $19,996
- Rebuild cost — $419,908
- Coverage A with a 25% extended replacement cushion — $524,885
Against a market value of $520,000, that rebuild figure is 80.8 percent of the price, and the remaining $100,092 is land and location. None of that burns down, which is why insuring to market value is over-insuring.
This is an estimate for setting coverage and checking a carrier's figure, not an appraisal. Construction costs vary by market and by builder, and insurers use proprietary replacement cost estimators of their own.