Are you struggling with how to calculate your commercial property or house rebuilding cost for insurance purposes?
Depending on the nature of the property and the insurance policy you are buying, you may need the cost of rebuilding of the property in order to insure it correctly. A standard home insurance contract based on the number of bedrooms will likely cover up to say, £1m or some are even unlimited. If your property does not fit the standard tick box criteria however, you may need to declare the cost of reinstatement to the insurer and use this as the basis of the policy cover.
There is absolutely no formula that can be used to calculate a rebuilding cost of a property by using the market value. Over the years we have heard on many occasions that and Estate Agent for example has said that perhaps on third of the market value is the cost of the land and the remaining two thirds can be used as the rebuilding cost. Nothing can be further from the truth, there is no formula to use, but if you insist on using one a formula then please use our one;-
The building sum insured is often more than the market value
AND
The building sum insured is often less than the market value
What if you get the rebuilding cost wrong?
If you don’t insure for the full amount, the insurer would apply the Condition of Average in the event of a claim and reduce the amount of the claim settlement by the percentage you are under insured by. This can leave you with a major shortfall in the amount needed leaving you unable to reinstate your damaged property. A typical definition of a rebuilding cost from an insurer is as follows;-
The cost of reinstatement of a property will include the removal of debris, architects / professional fees, the cost of European and Public Authority Regulations and of course, the cost of reinstatement of the property itself.
Factors which can affect the cost of rebuilding
Geographical – The geographical location of a property will affect the rebuilding cost. If located in the centre of London for example it is going to cost more in terms of contractor’s wages due to salary expectations and work force availability than if the property was in an area with high unemployment and a depressed economy.
Physical location
Access to the property is an important factor when assessing the cost of rebuilding. You will need to consider physical factors such as;- the building being located at the top of a very steep slope with only pedestrian access, is there parking availability directly outside the property for contractors vehicles, is there a pedestrian crossing outside the property which may need to be temporarily moved during the period of the rebuilding, is the property at the top of a very narrow lane meaning large delivery materials cannot access the site, is there access for cranes to deliver timbers, steels etc, is there room to place large skips outside the property, is the site next to a school / public building or landmark that may affect workmen access or delivery times.
Age of the property
The age of the building will affect the cost to rebuild it if it is subject to historical building listing status which will often specify that you use only certain materials in the reinstatement process. Some items such as windows, window frames, doors etc may well need to be hand built to fit the existing openings in the building.
Non-standard construction
If your property is of non-standard construction there may be additional costs in reinstating the property due to the cost of materials or rarity of the same. New, state of the art, environmentally friendly materials and fittings are not being produced in large enough quantity for the prices to be reduced by any economies of scale. Equally, much older materials are not in as much demand as they used to be meaning the cost for these are also higher than more modern materials. Timber framed properties with ornate, structural or decorative timbers can be expensive to reinstate due to the scarcity of the timber and difficulty engaging specialist joiners.
Additions
If you have extended the property with a conservatory, garage, loft conversion, extensive patio area, swimming pool and the like, these features will need to be included in your rebuilding cost calculation.
- Calculating the rebuilding cost of property
Engage a professional
There are a number of websites which will give you a computer’s opinion of what a sum insured should be. These can be used as a guide as long as you give the system the correct information and can understand the results. Remember, these can be used as a guide only and if there is any doubt then you should always consider using a qualified surveyor. Of course you will have to pay for a rebuilding cost survey, but compared with the possibility of tens of thousands (or more) deduction from a claim settlement for not insuring for the full replacement value, it will be money very well spent. You can find a list of qualified surveyors at rics.org/uk