House Valuation: Reinstatement (Rebuild) Value versus Market Value

NJOR

Hi there.
I am currently completing the forms from Zurich Insurance for home insurance in my name (the previous policy was in my late Mother's name) and I need to put a value on the house.

Current insurance policy valuation for the house is about Euro 700,000.

However, I believe the market value, the price I'd get if I sold it, is about Euro 350,000.

so I have 4 questions:
1). is the reinstatement (rebuild) value always higher then the market value?
2). Is there a Rule of Thumb regarding the difference between the market value and reinstatement value

My 3rd question relates to Probate.
3). Is the valuation for a house that is required by Probate based on the market value or the "rebuild" value"

4). Who / how can I calculate the market and rebuild values of the house?

Thank you in advance

NJOR

ABajaninCork

I'd get a couple of valuations first.

Rebuild value is always lower than market value. Rebuild is merely to bring the house back 'as was', and doesn't take account of area, amenties, general finish of the home.

I'd also get some free legal advice, just to belt and braces it.

D3PO

ABajaninCork wrote: »

Rebuild value is always lower than market value. .

thats absolutly untrue. Rebuild value is not always lower than market value. As a general rule of thumb yes but not as matter of fact as you make it sound.

OP you can get a rebuild cost per sq meter from the Society of Chartered surveyors www.scsi.ie thats a pretty good indicator of what you should be using to insure your rebuild cost. Its most likely less than the market value of the property but not always.

TwoShedsJackson

The market value has no bearing whatsoever on what the insurance company will actually pay out. Get the house insured for rebuild cost only.

If the house were to burn down, the company will pay out no more than the rebuild cost, irrespective of what you have it insured for. You can insure it for 700k if you wanted, or even 350k, but if it only costs 200k to rebuild that's all they'll pay.

They will of course be happy to charge you a higher premium for the higher insured value in the mean time...

Victor

NJOR wrote: »

1). is the reinstatement (rebuild) value always higher then the market value?

No. In certain circumstances, it can be completely in the other direction, e.g. re-building a house in dodgy part of town may cost the same as anywhere else, but the market valuation may be very low. Indeed, it may cost more than normal to rebuild if it is that bad. Other problems may be a contaminated site or one in a flood-prone area.

2). Is there a Rule of Thumb regarding the difference between the market value and reinstatement value

No.

Site Value + Reinstatement Value + X = Market Value

The problem is determining X, which might only be a few percent or might be quite a bit more than that. A completed house can be a little bit more valuable than unbuilt one.

My 3rd question relates to Probate.
3). Is the valuation for a house that is required by Probate based on the market value or the "rebuild" value"

Market value. However, get advice on this, as it may not be full market value, e.g. if the property is jointly owned and only part of the value is transferring.

4). Who / how can I calculate the market and rebuild values of the house?

Market value - estate agent.

Reinstatement value - quantity surveyor. The SCSI guide really only applies to the house types listed.

You will need to check the policy to see how it treats new for old and updating of the property, e.g. if rebuilding, you would need to comply with the current Building Regulations which might mean the property is enhanced by the reconstruction.

Note that contents insurance values are also needed.

L1011

ABajaninCork wrote: »

Rebuild value is always lower than market value.

This is not the case. The rebuild value of the house I'm buying is higher than what I'm paying for it. Not by much, but it still is.

StillWaters

Rebuild value (very roughly) €100 per sq ft.

Probate is based on the Market value. A letter from an estate agent stating the Market value will suffice.

StillWaters

Also rebuild cost is normally less than Market value as it excludes the site, but there are houses going for less than rebuilt cost now.

Victor

StillWaters wrote: »

Rebuild value (very roughly) €100 per sq ft.

That number could be ridiculously optimistic, depending on the circumstances of the property.

Stick to http://www.scsi.ie/rebuild2012 and adjust accordingly.

If you live in an apartment or other type of building, these costs may not be appropriate.

The_Conductor

Also- irrespective of what the open market selling price (OMSP) of a property may be- an insurance company is only liable to rebuild the property- and if you underestimate the rebuild costs- you do not necessarily get the entire amount you have the property insured for- the formula used uses a rule of thumb- if you have the house insured for 80% of the rebuild price- the insurance company can, depending on the policy, be liable for 80% of the insured rebuild cost- as opposed to the actual rebuild cost- that is- 80% of the 80%........

Example:
Rebuild price of house 500k
Insured amount 400k

House destroyed and being reconstituted

Rebuild cost = 600k
Insured amount = 400k
Actual disbursement = 400 / (400/600) * 400 = 267k

Be careful and read the small print- if you overinsure your property- you are paying for cover you don't need and can't claim- if you underinsure your property- you may only be entitled to claim for a proportional amount of the actual claim- not the entire sum you imagine you are insured for........... Read the small print........

murphaph

smccarrick wrote: »

Actual disbursement = 400 / (400/600) * 400 = 267k

I agree with the general jist of your post, but are you sure about the sums there?

My understanding is that (at least under most "normal" policies) in your example (400k insurance, 600k rebuild cost) that they'll pay out the 400k as that's all you've insured for and you'll have to find the other 200k yourself, BUT if you have a PARTIAL loss, of say 300k, that they'll say "you were only 400/600 (2/3) insured, so we'll give you 2/3 of your loss, ie 2/3 of 300k, so 200k would be paid out and you'd be left to find the rest yourself, which is fair enough as the property was under insured all along.

As you say, the small print is crucial and people should avoid under insuring just as much (possibly more) as over insuring.

Milk & Honey

murphaph wrote: »

I agree with the general jist of your post, but are you sure about the sums there?

My understanding is that (at least under most "normal" policies) in your example (400k insurance, 600k rebuild cost) that they'll pay out the 400k as that's all you've insured for and you'll have to find the other 200k yourself, BUT if you have a PARTIAL loss, of say 300k, that they'll say "you were only 400/600 (2/3) insured, so we'll give you 2/3 of your loss, ie 2/3 of 300k, so 200k would be paid out and you'd be left to find the rest yourself, which is fair enough as the property was under insured all along.

As you say, the small print is crucial and people should avoid under insuring just as much (possibly more) as over insuring.

This is more like it. Rebuild cost is one factor. Site clearance has to be factored in. If the site is contaminated e.g. with oil it can be way more expensive than rebuild costs to reinstate the house.

dermothogan

This should not be a major problem .I am a Chartered Quantity Surveyor and if you know or can get the square footage (or m2) of your house and can send a photo and answer a few simple queries for a small fee a reinstatement value check can be carried out.

murphaph

I don't think anyone needs a professional to do this simple calculation for them tbh. It's money for old rope as the rebuild cost guide is public information.

D3PO

dermothogan wrote: »

This should not be a major problem .I am a Chartered Quantity Surveyor and if you know or can get the square footage (or m2) of your house and can send a photo and answer a few simple queries for a small fee a reinstatement value check can be carried out.

sling your hook. and read the forum charter on your way out http://www.boards.ie/vbulletin/showthread.php?t=52883

john kinsella

murphaph wrote: »

I agree with the general jist of your post, but are you sure about the sums there?

My understanding is that (at least under most "normal" policies) in your example (400k insurance, 600k rebuild cost) that they'll pay out the 400k as that's all you've insured for and you'll have to find the other 200k yourself, BUT if you have a PARTIAL loss, of say 300k, that they'll say "you were only 400/600 (2/3) insured, so we'll give you 2/3 of your loss, ie 2/3 of 300k, so 200k would be paid out and you'd be left to find the rest yourself, which is fair enough as the property was under insured all along.

As you say, the small print is crucial and people should avoid under insuring just as much (possibly more) as over insuring.

Household policies will be either subject to Average or wear and tear should the sum insured be inadequate.

If average applies then the above poster is correct. i.e. sum insured of 100k which is inadequate and should be 200k in the event of a total loss the insurer will only pay the portion that they cover i.e. 50% underinsured they will only pay for 50% of what they insure or €50k

If wear and tear applies there may be no deduction depending on the state of the property prior to the loss but obviously they will only pay the amount they insure i.e. 100k

test4444

My house is listed and the rebuild cost is well over three times the market value. And the insurance company sent someone to determine the rebuid cost and thus set the level of insurance.

I just got my renewal and noticed the following:

If the damaged parts of the building cannot be ECONOMICALLY repaird or replaced. We will pay the reduction, soley due to the damage, in the market value of the buildings prior to the damage.

So if more then a third of the building is damaged they can claim the above and pay only the market value of the building not the amount insured even though they set the level of insurance.

Discuss.

The_Conductor

The reduction in the market value due to the damage- is not sufficient- a council could force you to make good the damage- irrespective of whether it is economically viable or not. I would not be satisfied with this clause- I would insist on it being reworded to something along the lines of:

'In the event of damage to all or part of the listed building, the insurance company shall pay to reinstate the damage caused to the satisfaction of the body responsible, for the geographic area in which the building is located'.

Just because its not economic to repair or replace a building (or part thereof)- does not mean you wont be forced to do just that by An Taisce or a Council- or subject to civil or criminal proceedings, if you fail to comply with any orders they may make.

Once its a listed building- reinstating damage can be horrendously expensive- and its rarely economic to reinstate damage- but you can be legally forced to do so- the clause, as it stands- means if there is damage- the insurance company isn't liable- you are.