Homeowners relying on their properties’ capital values when deciding what rebuild cost they need their insurance policy to cover may get a nasty shock, says property commentator Alistair Helm.
Landlords.co.nz is running a series of articles on the changes to the way this country’s insurance policies work.
This will see a move from full replacement policies – where the policy pays out whatever is needed to rebuild the house – to a set amount. As well as the cost of building a new home, the sum insured also has to cover the costs of demolition and getting the site ready for rebuilding.
Helm said he went to an open home in Auckland’s Grey Lynn recently, where the property’s $870,000 CV included improvements of $280,000.
But a rebuild cost calculator estimated it would cost more like $400,487 to rebuild the property oncce professional fees, demolition, removal of debris and the fact that houses now have to be built to a higher, more expensive standard were included.
Helm said he was prompted to investigate by a quantity survivor who had many houses he worked on would cost twice their CV values to build.
“He rightly wondered once owners start realising that replacement costs far exceed the CVs for their properties, that they will start to try and negotiate selling prices based on replacement costs. He reflected that this might well apply more to expensive architecturally designed properties, but in his experience all building costs usually exceeds CV values as most property valuations are based on historical values and consequently out of date.”