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What is Replacement Cost?
By Michael R. Sikora on 2/26/2011

Here are two examples to help you how location can make such a difference:

A two bedroom, two bath condo in Manhattan, New York:

  • Market Value $1,400,000
  • Equitable Value $610,000
  • Replacement Cost $390,000

Due to the affluence of the area and demand, the market value is substantially higher than the replacement cost. The owner has nearly 50% equity stake in the property.

A two story, four bedroom, two and a half bath home in Dallas, Texas:

  • Market Value $199,000
  • Equitable Value $209,000
  • Replacement Cost $241,000

An overabundance of properties for sale drives the market value down below the cost to replace it and causes the owner’s equity in the home to be negative.