Replacement Cost Assessment for Insurance Purposes
Replacement Cost Assessments (also referred to as insurance valuations) are required under Section 85 of the Strata Schemes Management Act 1996. Strata Managers, on behalf of the Owners Corporation, obtain Replacement Cost Assessments provided by a suitably qualified professional such as a QS, which is then submitted to the insurer to adequately insure a strata building.
Replacement Cost Assessments provide the recommended Capital Replacement Value to adequately insure the reconstruction or part-reconstruction of a building in the case of its destruction in the event of a natural disaster or fire. While the cost of the construction is the main component of a Replacement Cost Assessment, there are other important costs to consider. These include the cost of professional and authorities’ fees, inflation, demolition, removal of debris and the cost of all work external ground works. Unlike the name “insurance valuations” suggests, the Capital Replacement Value does not include the market value of the property, as produced by a Valuer undertaking a valuation.
Update Your Strata Insurance Regularly
Under legislation, Replacement Cost Assessments are required to be refreshed every 5 years. However, constant fluctuations in the property market will affect the economy, supply and demand, cost of construction, and more. As an effective risk management strategy, it is recommended to review Replacement Cost Assessments yearly, avoiding the consequences of under or over insuring the property.
What Do Our Reports Include?
Our knowledge and experience built over almost three decades of specialising in construction economics allows us to accurately provide comprehensive and easy to read reports that are affordable and educate our clients in the process. This ensures our clients have a clear understanding as well as assurance in the quality and value of our work.
Our detailed reports consider the following factors:
- Estimated reconstruction cost
- Demolition and removal of debris
- Escalation to commencement of construction
- Professional and authorities fees
- Escalation over life of policy
- Capital Replacement Value
- GST Allowance
Why Choose a Quantity Surveyor Over A Valuer?
Replacement Cost Assessments are required to be carried out by a suitably qualified individual. Quantity Surveyors are construction cost experts and are suitable qualified to carry out these assessments. Commonly, however Valuers are commissioned to do the same. Valuers are property experts and may inaccurately include irrelevant costs such as land and market value. Quantity Surveyors are usually involved in projects from design through construction and post-occupancy, giving them the experience and knowledge in generating accurate and detailed replacement cost assessments, which is a calculation based on construction costs. This is important as it assists in minimising annual insurance premiums whilst maintaining adequate funds to replace part of, or all of a building in the case of disaster.
Valuers have little hands-on knowledge about construction processes and costs, generating estimations based on surrounding property data to conclude the value of a property. As a result, the replacement cost assessment will likely be inflated, costing the owners corporation more money. Read our blog to find out more here.