The Importance of Buildings Valuations
The Under-insurance Issue
Buildings insurance is something that every property owner, business owner or homeowner will be aware of. However one factor that is often overlooked is the actual cost of rebuilding a premises, as if the building is not insured for the correct rebuild cost, then the insurance can spring a nasty surprise when you need it the most.
In the event of a claim then insurers can look to apply ‘average’ and reduce the claim payment accordingly. To use a basic example, if someone has only insured a building for 60% of it’s true rebuild value then insurers are only obligated to pay 60% of the value of the claim, whether this is a small claim for a damaged wall or a significant claim where a large portion of the building has been destroyed.
Needless to say, such a difference in costs can be catastrophic, whether for an individual or a business.
This is why we recommended that all of our Commercial clients who own property invest in a rebuild valuation from a RICS qualified surveyor at least every three years. This can provide peace of mind in two ways:
- We can then make sure that the building is insured for the correct rebuild cost
- Most of our Property Owners policies contain an ‘average waiver’ clause which states that if the client has had a valuation from a RICS qualified surveyor within the last three years (and insured for that amount) then average will not apply even if the rebuild cost has risen organically during that time
Aren’t Valuations Expensive?
Here at BHIB we have access to a number of different providers and valuation solutions that we can discuss with our clients, and the cost may actually be a lot less than you think.
For example, we have recently launched our Insurance Shortfall Valuation Service for our clients, which is exclusive to members of the Brokerbility network such as ourselves. This is a desktop service where, for buildings of a relatively straightforward nature, our partners at Rebuild Cost Assessment Ltd are able to provide a valuation without actually visiting your premises, with prices starting at £102 for a commercial premises and £72 for residential.
For larger or more complex premises, we do also have other options and providers that we can recommend and put you in touch with to arrange a full Buildings valuation.
BHIB do not earn any commission from any of our valuation partners.
Prices obviously vary depending on the size and type of the building, but what we can assure you of is that the cost will pale in comparison to the cost of suffering a claim on a building that is under-insured!
Surely the majority of properties are insured for the correct amount?
Sadly this isn’t the case, and this is why we are promoting the importance of valuations.
There are various reports and studies on this subject with a common theme being that the majority of commercial properties within the UK are currently underinsured. Some reports have this figure as high as 80%.
Here are some examples from our own clients’ properties of underinsurance that only came to light following a valuation:
- A Public House was insured for £200,000, a valuation revealed the true rebuild cost to be in excess of £800,000
- A large industrial premises was insured for £1,200,000, a valuation stated the rebuild cost to be £2,750,000
- A block of flats which was insured for £3,200,000, but a valuation confirmed the correct rebuild cost to be £6,000,000
In all three of these cases (and there are many more) the under-insurance was discovered following a valuation and, thankfully, not after suffering a claim.
How does this happen?
There are a number of factors that can be out of the control of the Property Owner, so having a building under-insured does not mean that you have done anything wrong or that you have deliberately sought to deceive the insurance company.
The costs of materials, labour, planning and design can fluctuate quite wildly (especially within the current economic climate) and even if a building has not changed within the past few years, it’s value certainly could have.
One trap that some people do fall into is to use the purchase price of a property as the rebuild cost and insure for that amount.
The purchase price, much more often than not, will be substantially different to the rebuild cost. Sometimes the purchase price will be more expensive, for example if the property is in a sought-after area and the value of the surroundings is a factor. Sometimes the purchase price will be less than the rebuild cost, for example if the seller reduced the price for a quick sale or if the property was purchased at auction.
When buying a new property it is imperative that you request a copy of the latest rebuild valuation, and if one is not available or if the valuation is three years old or more, then arrange for a valuation yourself.
What are the benefits of Property Valuations?
Put simply, we get peace of mind for our clients and an extension of that is peace of mind for ourselves.
Of course it will probably never happen to you, but the truth is that every week in the UK buildings are badly damaged or completely destroyed. If the worst was to happen to your premises, then a small outlay for a valuation beforehand could save you a lot of sleepless nights.
If you are an existing client of BHIB, or even a property owner with some questions about buildings valuations, then please do not hesitate to contact myself or any of our brokers who will be more than happy to discuss some options with you.