...in accordance with State Strata Rules and By-Laws
When taking out insurance on a strata property, insurance companies will require you to submit a valuation report. A licensed independent property valuer will determine an accurate cost to replace your property in the case of destruction such as fire, flood or natural disaster.
The building replacement cost is determined by having regard to the construction and quality of the existing property and assessing the cost and timeframe to replace this. The valuation does not take into account the current market value or the existing condition of the property. It is the valuer’s job to assess the cost to replace the building as new, in line with a similar standard of existing improvements, by applying industry knowledge and construction cost guidelines. Valuations for this purpose require a high level of understanding of construction processes and building costs.
It is a statutory requirement for all strata schemes to obtain a valuation for insurance purposes by a registered Certified Practising Valuer or Quantity Surveyor once every 5 years. Diligent strata managers normally recommend that a building insurance valuation is obtained at least every 3 years, and even in some instances annually. This practice is a prudent risk management strategy and protects against the potential loss incurred from under-insuring, as it is critical that the sum insured keeps pace with market changes. Historically, movement in building costs has been a crucial factor in leaving owners under-insured, often showing a dramatic variation from the inflation rate and hence increasing risk considerably. It is quite likely in the case of being under-insured, that the insurance company may only pay a portion of the true replacement cost of improvements, with the owner then required to pick up the shortfall. In the case of being under-insured, liability can be complicated – some argue that liability may sit with the owner, the owner’s corporation, the strata manager or the valuer however in our experience it is usually the property owner who is liable for under-insurance.
It is worth noting that current market construction costs in some sectors/areas have declined and due to annual escalations that are applied by insurance companies, many schemes may be over-insured and therefore paying too much in insurance fees
The valuer will assess the replacement cost in the case of destruction however it should be noted that the end value does not allow for any additional costs, such as a shortage of labour or building materials, which may occur due to catastrophes of natural disaster or floods.
What does an insurance valuation comprise?
When undertaking a valuation for insurance purposes, it should be noted that the cost of the building is not treated in isolation. Naturally, the buildings are the main cost component however there are other additional costs to consider and in most states, strata rules legislate that it is mandatory for these costs to be included in the replacement value of the strata building. These additional cost inclusions may comprise items such as professional fees, inflation, compliance with current building regulations, demolition and debris removal and the cost of all external items (e.g. fencing, paving, on-site recreation facilities).
LMW values residential, commercial, industrial and retail strata title properties for building insurance purposes and provides accurate valuation reports that are accepted by all leading insurance companies. Our insurance valuations are fully compliant with the strata rules, regulations and by-laws specific to each state of Australia.
Additionally, LMW specialises in insurance valuations where the current local Town Planning Scheme does not support the replacement of the existing strata development. This stance is more prevalent within older suburbs where councils have implemented changes to their local schemes since the buildings were originally constructed. For example: A 15-storey development may only be permitted by council to build up to 10-storeys, or similarly, a 30-unit development may now only be permitted to re-build a total of 20 units. In cases such as this, there are several methods of assessing the strata company’s appropriate insurance replacement cost which takes these issues into consideration.
Should the unthinkable happen and a strata property is destroyed, the insurance payout will be made in accordance with the Unit Entitlement listed at the rear of the Strata Plan. This is the value of an individual strata property in relation to others within the development and is usually assessed when the property is first built. Consequently, this will not reflect any changes since the original construction such as extensions or renovations, which may leave the owner under-insured. LMW can re-assess Unit Entitlements, which will take into account any modifications, to accurately reflect the current value of the property to ensure an owner is adequately compensated in the case of destruction.
If you wish to discuss any aspect of property valuation, please contact: