Purpose of a Replacement Cost Report/Insurance Valuation Report
Furthermore, it goes without saying, that a replacement cost report should also be independently undertaken and impartial to all parties, with no influence on its final assessment. As not to influence or arrive at an incorrect or misleading and unrealistic figure.
It should be noted that ‘contents of a property’ are not included in a Replacement Cost Report/Insurance Valuation as this responsibility solely sits with the individual property owner as they are best to have the knowledge of their own belongings and their value.
Other Industry terms (for replacement cost reports):
Replacement Cost Estimates are referenced differently across different industries. They include:
- ‘Replacement Cost Estimates/Reports’ used according to the Australian Institute of Quantity Surveyors (AIQS).
- ‘Insurance Replacement Valuation’ used by Owners Corporations.
- ‘Insurance Replacement Cost Reports’.
The above terms relate to the same report that has the same purpose.
5 Reasons for adequately Insuring a Building:
1) Owners Corporation (or Body Corporate) properties require adequate insurance in the event of a total loss. Owners Corporation Managers are obliged, as stipulated by the Owners Corporation Act 2006, to have all common property buildings insured (and updated every 5 years – minimum).
2) Appropriately insuring a building is vital, as doing so assists to safeguard all invested parties in the event of a total loss of the property asset.
3) Most noteworthy, inadequately insured either under or over can have cost implications.
4) Being ‘underinsured can be potentially worse of the two situations. In this instance, there would be an inadequate amount of funds available to reinstate the property (or at all) and up until that point in time, there would have been the payment of considerable yearly premiums of insurance (that in effect and retrospect was dead-money).
5) Yet, being ‘over-insured’ would result in overpayment of premiums year-on-year.
How Often Should the Insured Sum/Sum Insured be Reviewed?
Is the property adequately insured and current? When was the property last insured?
These are questions that need to be reviewed and actioned frequently.
The Australian Institute of Quantity Surveying (AIQS) recommends regular periodic review, with Replacement Cost Reports usually carried out on a three-year cycle.
- First-year: Measured estimate is prepared and priced at current rates.
- Second or third year: Estimated costs are reviewed and adjusted for increases in escalation, adjustments made for any improvements advised by the building manager etc.
- Fourth-year: Re-measured estimate is adjusted for any improvements and re-priced at current rates.
Not doing regularly can have grave financial consequences for all invested parties (e.g. property owners, landlords, owners corporations/body corporates).
The main component of a Replacement Cost Report/Insurance Valuation
Reinstatement Cost/Building Cost (is the main component of a Replacement Cost Report/Insurance Valuation).
A replacement cost assessment includes and is directly related to the reinstating of a building.
The main component of such an assessment includes the building component (Reinstatement Cost/Building Cost) i.e. the direct ‘reinstatement building costs’. Or as listed in the sum insured section, ‘Estimated cost of constructing a similar building on the same site’. What the reinstatement cost IS NOT, is the ‘market value’ or figure based on ‘comparable sales data’. IT IS and solely the construction-related costs of the building. The building reinstatement costs/construction costs include such things as costs associated with material, plant, equipment and labour, demolition of the existing site etc.
Quantity Surveyors Expertise
Quantity Surveyors as appropriately Suited to Provide Replacement Cost Reports/ Insurance Replacement Cost Reports:
Firstly, a Quantity Surveyor is a degree qualified and building & construction industry experienced professional that assists in the financial planning, monitoring, assessing and delivery of construction projects (find out about BWK Group).
Traditionally, they are appointed to represent the client in order to monitor, report timely and accurate data and provide assistance on cost savings and cost improvements for the successful delivery of construction projects to and under budget. Post-construction they also offer Tax Depreciation services.
Financial planning and monitoring building & construction projects are usually gained from working on projects of all sizes. Tasks involved would include measuring, quantifying, pricing and estimating these built environment projects.
Quantity Surveyors work is often relied upon by governments, authorities, banks, other financial institutions and developers etc. On the other hand, and on a smaller scale, their work is also relied upon by property investors (for tax depreciation).
Through the duties of financial monitoring and guidance of building & construction projects, consequently, they too have databases of actual costs (not limited to material, plant, equipment and labour for the construction costs of a building), building rates and data that would assist in providing an adequate undertaking of a Replacement Cost Reports/Insurance Valuation Reports.
As detailed above they are regarded as the building and construction cost expert. A profession solely dedicated to planning, monitoring, quantifying, pricing and estimating the built environment. They have the qualifications, skills and experience to use their knowledge and cost databases of similar projects to arrive at an adequately insured sum amount in the form of a Replacement Cost Reports/Insurance Valuation Reports.