Mercury Insurance explains why what your home is worth and what it costs to rebuild it can be two very different numbers

LOS ANGELES, Sept. 24, 2026 /PRNewswire/ -- Homeowners may be surprised when the amount of insurance on their home doesn't match its current market value. Mercury Insurance (NYSE/NYSE TX: MCY) says the reason is simple: homeowners insurance generally focuses on what it could cost to rebuild the home, not what someone might pay to buy it.

"Market value and replacement cost measure two very different things," said Adam Bakonis, Director of Property Product Management at Mercury Insurance. "Market value reflects what a buyer may be willing to pay for a home and the land it sits on. Replacement cost focuses on what it could take to rebuild the physical structure after a covered loss. Those numbers aren't expected to move together."

What Is Market Value?

Market value is the estimated amount a home could sell for under current real estate conditions. It can be influenced by factors that have little or nothing to do with the cost of rebuilding the house, including:

• Location and neighborhood desirability
• School districts
• Lot size and land value
• Local housing supply and demand
• Interest rates and broader economic conditions
• Proximity to jobs, transportation, shopping and other amenities

In a competitive housing market, those factors can push a home's selling price well above its estimated reconstruction cost. In other markets, rebuilding the home could cost more than its current market value.

What Is Replacement Cost?

Replacement cost is an estimate of what it would take to rebuild a home using materials of similar kind and quality at current prices.

Unlike market value, the calculation does not include the value of the land. Instead, rebuilding costs can be affected by factors such as:

• Current construction labor rates
• Lumber, roofing, concrete and other material costs
• The home's size, design and construction type
• Interior finishes and built-in features
• Debris removal and site preparation
• Local building codes and permitting requirements
• Demand for contractors and materials, especially following a major disaster

"Homeowners sometimes see their dwelling coverage and compare it with an online real estate estimate or a recent appraisal," Bakonis said. "That can create confusion because they're comparing two numbers designed to answer completely different questions. One estimates what the property may sell for. The other helps estimate what it may cost to put the home back together."

Why Rebuilding Can Cost More Than You Think

Rebuilding a home after a major loss is different from building dozens of homes as part of a new development. A contractor may have to demolish damaged portions of the structure, remove debris, work within an existing lot and meet current building requirements.

Costs can also increase after a widespread disaster. When many homes in the same area need repairs or reconstruction at once, demand for contractors, skilled labor and building materials can rise.

Changes to building codes can add another layer. A home built decades ago may have to be reconstructed to meet today's requirements, which can affect the overall cost of rebuilding.

"Coverage options such as Additional Replacement Cost and Ordinance or Law can help homeowners prepare for rebuilding expenses that may go beyond their standard dwelling coverage," Bakonis said. "Additional Replacement Cost can provide extra protection when rebuilding costs exceed the dwelling limit, while Ordinance or Law coverage can help with costs associated with meeting current building codes and requirements."

Why Your Coverage Amount Can Change Even If You Haven't Remodeled

Homeowners may also notice that their dwelling coverage changes from one policy term to another even when they haven't made major improvements.

Construction costs change over time. Labor, materials and other rebuilding expenses can increase independently of the home's real estate value. Insurers may adjust estimated replacement costs periodically to help account for those changes.

But these automatic adjustments cannot account for everything. That makes reviewing a homeowners policy important, particularly after significant improvements.

"If you remodel a kitchen, add square footage, finish previously unfinished space or make another substantial improvement, let your insurance agent know," Bakonis said. "Your insurer can't account for changes it doesn't know about. A quick conversation can help make sure the information being used to estimate your rebuilding cost better reflects the home you actually have today."

What Homeowners Should Review

Homeowners don't need to become construction-cost experts, but they should periodically review their policy and the basic information used to describe their home.

Check that the insurer has accurate information about the home's square footage, construction type and major features. Tell your agent about significant renovations, additions or upgrades, and ask questions if the dwelling coverage amount is unclear.

Homeowners know their homes better than anyone else. An insurer's replacement cost estimate is an important starting point, but it may not capture every feature, finish or rebuilding consideration. If homeowners believe they need more coverage, they should ask their agent whether increasing the dwelling limit or adding available coverage options is appropriate for their home. Most importantly, don't assume a home's sale price is the amount it should be insured for.

"Your home is both a piece of real estate and a physical structure, but insurance and the real estate market look at it through different lenses," Bakonis said. "Understanding that distinction can make your homeowners policy much easier to understand and help you have a more productive conversation with your agent about your coverage."

For information about these and other topics related to home value, visit the Mercury Insurance Resource Center.

About Mercury Insurance

Mercury Insurance (NYSE/NYSE TX: MCY) is a multiple-line insurance carrier predominantly offering personal auto, homeowners, renters and commercial insurance through a network of independent agents in Arizona, California, Georgia, Illinois, Nevada, New Jersey, New York, Oklahoma, Texas and Virginia, as well as auto insurance in Florida. Mercury writes other lines of insurance in various states, including commercial, business owners and business auto, landlord, home-sharing, ride-hailing and mechanical protection insurance.

Since 1962, Mercury has provided customers with tremendous value for their insurance dollar by pairing ultra-competitive rates with excellent customer service, through more than 4,200 employees and a network of more than 6,340 independent agents in 11 states. Mercury has earned an "A" rating from A.M. Best, as well as "Best Auto Insurance Company" designations from Forbes and Insure.com. For more information visit www.MercuryInsurance.com or follow the company on LinkedIn, Instagram or Facebook.

Media interested in receiving updates from Mercury can learn more at the Mercury Newsroom.

SOURCE Mercury Insurance Services, LLC