Reviewed by Stefan Tirschler
Updated May 26, 2023
mar·ket val·ue | ˈmär-kət ˈval-(ˌ)yü
Definition: The value of an asset if it were to be sold on the open market.
She was delighted to buy her new house at below the market value.
Market value is a measure of what something would be worth if the owner were to put it up for sale.
Market value is often associated with homes, but anything that you can sell has potential market value. In home insurance, we talk about the market value of homes and certain kinds of personal property.
The most exact way to figure out your home’s market value is to sell it. The amount someone pays you for it is basically the market value.
You may, however, wish to learn the market value without having to move. Fortunately, you can estimate it!
The market value of a home takes into account many things:
Location. The neighbourhood in which the home is located is a big factor. Being close to good schools, public transit, or other desirable things makes a home’s market value go up.
House size and features. Unsurprisingly, big houses with more bedrooms and bathrooms are generally worth more than small houses. Features like garages, large decks, or well-landscaped yards can also boost market value.
House age and condition. As houses get older, their market value may drop. Proper maintenance over the years helps keep the value high.
Historical sale prices. If a house has been sold in the past, the past sale prices will influence the current market value.
Current local market. What are similar houses in the same city being sold for? How long are those houses staying on the market? A hot housing market pushes up the value of any home that’s for sale.
Those are some of the factors involved in market value of a house. But how do calculate market value?
To do it properly, you need to have a real estate professional appraise the home. Their experience and local knowledge are necessary for getting the most exact evaluation.
You can quickly ballpark your home’s market value on your own, though. One way is to look up a few comparable homes for sale in your area. For each, take the asking price and the square footage to see what the value per square foot is. If you average a few of these together, you’ll have an average market value per square foot estimate for your area.
Take that estimate, multiply it by your home’s square footage, and you’ll have a rough estimate of your home’s market value.
It’s worth noting that market value is different from the municipal or provincial assessed value of your home. The assessments that you get each year for property tax purposes are similar in some ways, but usually don’t match the actual market value.
Now, bringing it back to home insurance: home insurance providers aren’t really interested in the market value of your home. You typically insure your home for its replacement value, not it’s market value (more on that in a moment).
Home insurance does, however, sometimes use the market value of specific items within the home: irreplaceable jewellery, artwork, and so forth.
Most policies insure personal property for either replacement value or actual cash value. Both require knowledge of what the property would cost to replace.
However, some things can’t be replaced. Original artwork, wine collections, coin collections… There’s just no way to figure out the replacement cost for these types of items. People who own such things usually insure them for their market value.
Much like a house, the market value for a piece of artwork or a collection of rarities is based on what someone might pay for the item if it went up for sale. To make sure it’s insured for the correct amount, owners of irreplaceable items usually need to have them appraised by a qualified professional before they can get insurance coverage.
As we’ve established, market value is what something would be worth if the owner put it up for sale on an open market.
Replacement cost, meanwhile, is what it would cost to replace something. That part’s obvious, but in insurance, there’s one extra detail that makes it more specific:
It’s the cost to replace something with a new item, of similar kind and quality.
Using a house as an example, the replacement cost really has nothing to do with its market value. Market value, for example, includes the value of the land the house sits on. Replacement cost does not; you don’t need to pay for the land a second time if you’re rebuilding your house.
With smaller items, say a television, replacement value works the same way. A 15-year-old TV has almost no market value: no one wants to buy an old TV. But, to replace it with a new TV of similar quality may cost over $1,000. That’s the difference between market value and replacement cost.
We’ve got an entire article on replacement cost if you’d like more detail on that subject.
Looking for another insurance definition? Look it up in The Insurance Glossary, home to dozens of easy-to-follow definitions for the most common insurance terms. Or, get an online quote in under 5 minutes and find out how affordable personalized home insurance can be.
About the expert: Stefan Tirschler
Stefan is responsible for underwriting leadership, market expansion, and product research and development for Square One's operations. Stefan has earned his Fellow Chartered Insurance Professional designation, and maintains a level 2 general insurance license in British Columbia, Alberta, Saskatchewan, Manitoba and Ontario. Stefan is also an Education Committee member and CIP/GIE instructor for the Insurance Institute of Canada.
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