Platform · Glossary
Replacement cost.
The estimated cost to rebuild the structure on the property today, using current materials and labor. Excludes the land — land doesn't burn down and doesn't need to be replaced.
Two uses
Insurance. Standard hazard insurance policies cover the structure up to replacement cost (or some fraction of it). The replacement cost on the policy determines the premium and the payout ceiling in a total loss.
Sanity floor on price. When a market's purchase price falls well below replacement cost, new construction stops being economically possible — no developer will build something at $250 per square foot if the existing stock trades at $180. Markets at or below replacement cost are usually structurally undersupplied at current rents, which is a positive forward signal for landlords (less new competition) and a negative signal for capital-A appreciation (the discount exists for a reason).
When 3Y surfaces it
Replacement cost shows up in the property risk profile and as context when modeled prices diverge significantly from market estimates. It's most useful in markets that have been through long stretches of price decline or in areas where construction costs have spiked recently.