Species–area (SAR) and endemics–area (EAR) relationships are amongst the most common methods used to forecast species loss resulting from habitat loss. One critical, albeit often ignored, limitation of these area‐based estimates is their disregard of the ecological context that shapes species distributions. In this study, we estimate species loss using a spatially explicit mechanistic simulation model to evaluate three important aspects of ecological context: coexistence mechanisms (e.g. species sorting, competition–colonization tradeoffs and neutral dynamics), spatial distribution of environmental conditions, and spatial pattern of habitat loss. We found that 1) area‐based estimates of extinctions are sensitive to coexistence mechanisms as well as to the pattern of environmental heterogeneity; 2) there is a strong interaction between coexistence mechanisms and the pattern of habitat loss; 3) SARs always yield higher estimates of species loss than do EARs; and 4) SARs and EARs consistently underestimate the realized species loss. Our results highlight the need to integrate ecological mechanisms in area‐estimates of species loss.

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