Recent bushfires, earthquakes and floods have inflicted millions of dollars worth of damage to buildings. Now all unit owners are realizing the vital importance of an accurate, up to date Insurance Replacement Valuation.
The recent fluctuation in the market for building materials and skilled trade’s people has seen many buildings currently underinsured. Being underinsured can ultimately cost your building a lot more money.
Many insurance valuation providers use a simple and quick calculations method. Work out the floor area of the whole building and then multiply it by one rate per square metre. While this is simple it is not close to accurate.
Here is an accurate Valuation Calculation approach…
To get the right number a professional will divide the different areas of the building and multiply them all at different rates based differing levels of finish, area uses and types and quantities of construction materials used.
For example there are massive differences in construction costs for different areas like open balconies compared to closed fire escapes & common hallways, or cross‐flow ventilation car parks compared to enclosed or underground car parks.Buildings with other improvements and assets need to calculated too; like the type, speed & floors covered by a lift, levels of fire safety barriers and equipment.
All other associated costs need to be calculated accurately such as demolition costs, consultant fees (including architectural and structural engineering) Council and other regulatory fees, estimators costs, landscaping and external works.
Allowances for cost escalation caused by floods, cyclones and other disasters
There have been a number of natural disasters in Australia’s history and the data collected from these allow calculations to be made that account for the affects. When a disaster happens there is usually a massive increase in demand with limited supply. The economic drivers of supply and demand kick in and reconstruction costs rise. The three events that we use as a benchmark for our cost escalation calculations are:
- After Cyclone Tracy (Darwin in 1974) ‐ 28%
- After the Newcastle earthquake (1989) ‐ 32%
- After the ACT bushfire (2003) ‐ 50%
The new building code factor
Of particular note is that one of the major cost drivers in rebuilding can be that rebuilding has to meet the current building codes which skews the figures somewhat. This is generally not as major a factor in strata due to the design engineering requirements in both low rise and high rise buildings because of factors like wind loads used in engineering design and fire barriers adding to structural strength. Despite this, all must be taken into account if you want an accurate Insurance Replacement Valuation.
A comparison with building design
There is a parallel with engineering design, a lazy engineer can simply over allow for tonnes and tonnes of extra concrete and reinforcing steel costing the eventual owners tens or hundreds of thousands of dollars each. If an Insurance Replacement Valuations is completed by a lazy
quantity surveyor or valuer they use massively excessive rates per square metre for all parts of a building regardless of finishes, height above or below the ground or amenity. Lazy over calculations end up costing the building’s owners money and ultimately makes the person who engaged them look bad. On the other hand when engineering building design is done properly the engineer accurately calculates the wind, weight and design loads so that the structure incorporates the required building strength with a safe margin above it. A quality Insurance Replacement Valuation is approached in exactly the same manner.
Make sure you engage an experienced valuers and quantity surveyors who systematically break down your building’s replacement costs to the necessary level of detail so your replacement cost estimation is completely accurate. This ensures you get a professional report you can rely on every time.