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The Owners Corporation Act & Regulations places accountability on the Owners Corporations, their elected committee and appointed manager, to ensure that all Owners Corporations are insured for its full replacement value.
budget✔als reports are based on real world construction costs backed by other checking mechanisms built into our software. Our reports also take into account and estimates the constraints of the building site for example; is the property on flat land or located in the CBD where additional costs would be allocated to cover such things such as traffic management, parking fees, rent of footpath or road space from the local municipalities etc
Accurate Rent & Temporary Accommodation We provide an accurate assessment from rental and comparable sales data available to us, to estimate the Loss of Rent / Temporary Accommodation which can sometimes be much higher than the automatic cover provided by some insurers, normally 15% of the insured sum.
Consider the qualifications of the service provider, the assessment of Reinstatement & Replacement Insurance Report requires a broad range of professional skills and experience, such as an appreciation of costs for the construction or supply of assets of a similar size and utility; an appreciation of demand and supply of building materials and labour, professional services and planning and building approval processes which determine the timeframe for rebuilding.
Our combined industry experience and qualifications as registered unlimited building practitioners and licenced estate agents ensures that your insurance reinstatement and replacement valuations are the most comprehensive in the industry.
Our research & data shows that 80% of owner’s corporations are under insured, 10% insured for the correct amount, 5% insured for almost half and 5% insured for more than the correct amount.
The best investment a property can make is to insure their asset for the correct amount.
Other factors we also take into account is the rebuilding time, the time that lapses following a major disaster and the reinstatement of the building to a fully-functional state is often underestimated. Other items which need to be considered include compliance with newly introduced local planning laws and building codes will often mean new and unforeseen additional costs not originally included in the original insured building at the time of the valuation. These items are often missed by property valuers who don’t have any construction skills or building qualifications.
Our reports are not completed assuming the building condition and or value of today. We assume the requirements of a new development taking into consideration the National Construction Code (NCC) and relevant planning and building legislation and requirements. Essentially resulting in the Owners Corporation receiving a far superior development.
Our reports also take into account the escalation of costs, which is the cost of building materials and labour which often outstrips the Consumer Price Index (CPI). budget✔als always uses the Building Price Index (BPI) which is much higher than the CPI. In some years the BPI has increased by almost twice the rate of CPI in the last 10 years alone.
|What is the difference between reinstatement and replacement?||The difference between reinstate and replace is that reinstate is to restore somebody to a former position or rank while replace is to restore to a former place, position, condition, or the like.|
|What is reinstatement basis of insurance?||Reinstatement cover means that the insurers will pay the cost of replacement with a new one which is equal to but not better than the item lost or damaged. This is usually the basis of cover under the Event Assured "all risks" cover, provided the sum insured represent the full replacement cost.|
|What does full reinstatement value mean?||Quite simply, the building sum insured, rebuild cost or reinstatement cost requested during building insurance application is the amount of money for which your building is insured for in case of total loss. The market value of your building or the Council Rate |
Valuation has no direct relationship to the rebuild cost.
|What is reinstatement in a valuation report?||A reinstatement valuation generally assesses the estimated cost of reinstating a building on a date following total loss or such substantial damage that the entire structure requires demolition and rebuilding.|
|Do I need building insurance if I have strata insurance?||With strata buildings the body corporate or Owners Corporation is required by law to hold residential strata insurance, and this generally covers common or shared property under the management of a strata title. ... If there are gaps in cover, you may need to look to your contents cover under your home insurance policy to cover it.|
|What is reinstatement cost assessment?||Most insurance underwriters require a professional evaluation of a building's rebuilding cost following total destruction. Known as a Reinstatement & Replacement Cost Assessment (RRCA), their accuracy is crucial in ensuring that property is adequately insured and carrying out an RRCA is a highly technical exercise and should only be carried out by consultants who have building knowledge and Professional Indemnity Insurance (PI) to back their a Reinstatement & Replacement Cost Assessment report.|
|Is rebuild cost less than market value?||The rebuild cost is the amount it would cost to completely rebuild the damaged building if it were destroyed beyond repair. It includes the price of labour and materials. This cost is usually lower than your home's sale price or market value.|
|Are you paying additional and unnecessary insurance premiums?||Calculating your rebuild cost is important, the rebuild cost is the amount it would cost to completely rebuild your building if it were destroyed beyond repair. It includes the price of labour and materials. This cost is usually lower than the buildings sale price or market value. Basing your policy on your buildings rebuild cost will prevent you from over- insuring and paying higher premiums than necessary.|
|Calculating your home rebuild cost||If your building is made of non-standard materials (not brick-built) or has specialist architectural features, its rebuild cost may be higher than its market value. In this case, insure your building against the higher rebuild cost not the lower sale price or market value to avoid any insurance shortfalls.|
|What are fixtures||Fixtures are generally items which are attached, or ‘fixed’ to the property, the best way to remember what fixtures are is to remember that if it's attached (via screws, nails, glue, etc) to the walls, floors or ceilings, it's a fixture. While fittings or contents are items which aren't attached to the property, other than by a nail or a screw (such as a picture or mirror, other examples include light fixtures, ceiling fans, kitchen cabinets and so forth.. these items are part of the property and are therefore considered fixtures.|
|What are Contents||A general definition of contents is furniture, furnishings, unfixed electrical goods, valuables, paintings, portable personal possessions, clothing and unfixed household goods that are the property of the insured. The easiest way to determining what is a content is assuming you could tip the house upside down and any item which falls off is considered a personal content, where as fixtures are fixed to the structure for example kitchen cabinets, taps doors, fireplaces etc. If Insurance cover is required fro your contents you may need to insure these items seperatly.|
If your property were to be completely destroyed due to a fire or some other disaster, could you safely say your buildings insurance would sufficiently cover you for the full reinstatement and rebuild costs, plus any other related losses such as loss of rent for investment properties and or temporary accommodation.
The importance of getting your building reinstatement value right cannot be underestimated. Sounds simple but it is one of the most common errors individuals make when insuring a building.
Many people mistakenly assume that the reinstatement value, also known as the
‘Declared Value’ or ‘Rebuild Value’, is the same as the ‘Purchase Price’ or ‘Current Market Value’ of a property. However, this is by no means the case and the market price should certainly not be considered a basis for calculating the reinstatement value.
The reinstatement value relates specifically to the property and the cost of its rebuild from scratch. It considers the size of the building, what it’s made from, permanent fixtures and fittings, special features, the quality of the finish and the location, amongst other factors.
Other, especially important considerations which are included in the reinstatement and replacement value include expenses such as the removal of debris and site clearance and professional fees for architects, engineers and surveyors must be factored into the rebuild costs.
If you fail to get the reinstatement and replacement value right you could face a reduced payout when you make a claim. If you are underinsured, most insurers will only pay out a proportion of the total rebuild cost, and this will be connected to the amount by which you are underinsured.
Over Insured or Under Insured
We define the difference between the ‘Declared Value’ or ‘Rebuild Value’ and
The ‘Purchase Price’ or ‘Current Market Value’ also includes the land in which the improvements sit on, in a Reinstatement & Replacement Valuation the land needs to be removed from the valuation.
Because the cost of a premium is often linked to the ‘Declared Value’ or ‘Sum Insured’, many people opt to declare a lower rebuild cost than would be realistic in order to save money on the annual insurance premium. However, this is a false economy that could have devastating consequences. So, how to calculate the correct reinstatement value?
For example, you insure your property at a rebuild value of $1million but in fact the cost to rebuild is $2 million. The most the insurer is likely to pay out is 50% of the building claim.
*The following 'Table' provides some examples of 'Over Insured', 'Under Insured' and 'Correctly Insured' scenarios, it assumes you have suffered a 100% loss.
|Sum Insured||Land Component||Total Improvements||Current Market Value||Rebuild Value||Cover %||Maximum payment by insurer||Result|
|$2 Million||$1 Million||$1 Million||$2 Million||$1 Million||100%||$1 Million||Over Insured|
|$1 Million||$1 Million||$1 Million||$2 Million||$1 Million||100%||$1 Million||Correctly Insured|
|$500,000||$1 Million||$1 Million||$2 Million||$1 Million||100%||$500,000||Under Insured|
* Amounts shown are in Australian Dollars.
There is only one way in which you can calculate the Reinstatement & Replacement Value for your property, that is using a professional who will take into account all rebuilding and other associated costs into account such as loss of rent, temporary accommodation, and also takes into account rebuild costs which will rise over the time of the loss to the time of the completed reinstatement as inflation drives materials and labour upwards.
No doubt you have seen the term, ‘Sum Insured’ on your buildings insurance policy together with the ‘Declared Value’. The difference between these two figures is related to inflation. The ‘Declared Value’ should represent the full Reinstatement & Replacement value for insurance purposes at the start date of the Period of Insurance.
The ‘Sum Insured’ is the ‘Declared Value’ plus an inflation provision of usually between 10 per cent and 50 per cent and is designed to cover the effects of inflation. This is particularly important in times of high inflation and provides cover for a rise in costs in things like planning, designing and construction (including labour and materials), all of which may be subject to inflation based price rises over and above those that formed the basis of the calculation of the original Reinstatement & Replacement value.
When arranging buildings insurance, either for your home, Owners Corporations, or commercial premises, it is crucial to ensure you have an accurate ‘Declared Value’. Establishing this value calls for expert knowledge, so here at budget✔als we always recommend our clients arrange a professional valuation from a qualified ‘Property Professional’ who is fully insured to do so.
As well as providing you with peace of mind that your ‘Declared Value’ or ‘Sum Insured’ is correct, it should assist in expediting settlement of any claim thanks to the professional reinstatement & replacement valuation report you possess as available evidence to prove the correct value of the building. Furthermore, from time to time a professional valuation may even reveal that you have over-insured for rebuild purposes, which means you could end up making savings on your premium.
Any ‘Property Professional’ who can demonstrate a history of experience, be backed by a ‘Professional Indemnity (PI Cover)’ from a reputable insurance company to back up their Reinstatement & Replacement Valuation report.
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