||Because there are several ways to assess a home’s value you may have several different dollar figures according to whom is doing the assessing and the difference can be as much as tens of thousands of dollars! The banks and mortgage companies look at market value — what a house of similar style, size and age would be worth at that time, while, taxes are determined using the market value of homes in the neighbourhood and insurance companies look at the rebuilding cost of a home. For example, should the worst case happen and a home is completely destroyed in a fire the insurance company, through an insurance policy, promises to rebuild the home in the same fashion. The rebuilding cost of a home includes such features as debris removal, taking away all the wreckage of a home, undergoing any environmental tests as required, and getting the home rebuilt or repaired as quickly as possible. There are many factors in determining the rebuilding cost including type of building, design, site accessibility and local bylaws. Because insurance companies do not rebuild many homes (total home loss is not common) an insurance company pays market price for construction labour and materials, unlike a new home builder who has many volume discounts.
To see the difference between market value and rebuilding cost imagine two identical homes, one in downtown Toronto and one in Fergus. Both homes have the same square footage and same building materials. While the rebuilding costs between these two homes might be slightly different due to local bylaws or how close neighbouring buildings are, the market value of the homes could be different by hundreds of thousands of dollars. Depending on the housing market, it could be that the market value of the home in Fergus is less than the rebuilding cost and the market value of the home in Toronto is far higher than the rebuilding cost.