Calculating Replacement Insurance

As building inspectors, we are often asked by house purchasers what price they should consider insuring their new property for under a replacement policy. This is often a difficult question to answer and in many cases an identical rebuild or replacement value can exceed the market worth of a property – particularly if it is older and constructed with what are now hard to source materials, timbers such as Kauri, Rimu and Matai. These native timbers were once widely used and available in plentiful supply going back 50 – 100 years in time, however are now considered prized and are priced accordingly.

Older villas are more expensive to replicate and so the standard rates and square metre price estimates can be literally ‘thrown out of the door’ when trying to estimate replacement costs; although where properties receive such damage that a complete rebuild is necessary, owners will often consider constructing a more modern looking home with different architectural qualities than the one that has been written off.

Valuer’s can provide an estimate of market value, (and nearly always know the size in square metres of the property they are valuing), building inspectors can assess the current condition of the property; but it is probably builders who are constantly pricing for work that have the best idea in estimating replacement values.

market value

There are many questions to ask and items to consider when trying to estimate this value and we have enclosed some of these items below which we regularly encounter in our property inspections:

  • What special or peculiar conditions exist on or around the site – is it sloping, is it located down a private right of way, is it Unit Titled, does it have any special characteristics that could require unexpected rebuild costs? These are all questions that should be asked and answered, and may involve the need for a Resource Consent, the need for Geotechnical and Specialist Engineering to stabilise the site or mitigate liquefaction, or require a contribution from your neighbours insurers. These are costs that can significantly increase re-build estimates and are something that a good qualified builder should be able to provide estimates for.
  • In the event of a complete re-build demolition costs will need to be factored into the equation and these can vary depending on recovery of salvageable materials, tip fees, property location, and contractors. The discovery of asbestos in demolition materials will also increase this cost.
  • Any new construction will require either a Registered Engineer or Licensed Building Professional with a design qualification with MBIE to provide consent drawings to the Territorial Authority (council) for the building consent.
  • Building Consent fees will need to be budgeted and these will be over and above of the monies paid to the designer. These fees can vary enormously from council to council and will vary according to the processing time, number of onsite inspections required, administration charges, and a levy which is taken by all councils and passed onto Central Government.
  • Depending on how you wish to have your replacement house built you may need to factor into account the services of a Project Manager to oversee construction, and to manage timeframes and budgetary constraints. This is a service that almost all franchised construction company’s offer nowadays, and is imperative to ensure that build goes to plan.
  • Rebuild costs can best be estimated by the size in square metres of your current property multiplied by the ‘average’ rebuild price in $ / m2 for the replacement dwelling. Often insurance companies have calculators on their websites to help you estimate this figure.
  • Landscaping such as driveways, fences, paths, decks, retaining walls – even gardens and new lawns should also be factored into the remediation costs associated with the replacement estimate.
  • Accommodation costs associated with putting a roof over both you and your loved one’s heads whilst you work your way through the process and await the keys to your new home!

Too high a figure and you will end up paying extra to your insurer in premiums, to little and you may not be able to afford to rebuild your property. Shop around and check out the different policies and exclusions that the insurers offer.  Get expert advice from a professional you know, or can trust. If you can’t, consider employing the services of a reputable company to provide you with information you need to be fully informed.

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