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Frequently Asked Questions

What are the common types of Property Valuations?

The most common types and methods of valuing a property are Market Value, Replacement Cost Value and Investment Value.

  • Market Value is the probable value of a property determined between a willing buyer and willing seller in an open competitive market where each party act with knowledge and undue influence. The valuation is based on comparable sales of the subject property in the same area factored for size, condition and features.
  • Replacement Cost Value or Insurance Value is the total replacement cost or reinstatement cost of a total loss of a property at a point in time and includes the demolition of the existing structure, rubble removal, professional fees and the cost of rebuilding the Property to the same specifications before the loss.
  • Investment Value is the value an individual or company would be willing to pay for a particular property based on their specific investment goals considering costs of repairs and maintenance, expected rental income, Internal Rates of Return on Investment and Capital Appreciation.

Each of these valuation methods are determined with different objectives in mind and vary considerably.

What is Value at Risk?
The Value at Risk is the insurable amount procured from an Insurance Provider to cover the risk of total loss or destruction of an asset or property. This is determined by the computation of the total cost of replacement or reinstatement, including the demolition of the damaged structure, rubble removal, professional fees and the cost of rebuilding the Property to the same specification before the loss or destruction.
What Valuation is required for Insurance purposes?

The Replacement Cost Value valuation is essential to safeguard an owners true value of a property for insurance purposes.

What happens if your property is undervalued for Insurance purposes?

If your Property is undervalued, your Insurance Provider will only pay out the maximum value of the insurance policy’s insured risk in the event of a total loss, and only a proportion of the amount of any partial claim, leaving the owner responsible for covering any shortfall in replacement costs.

It is therefore essential to ensure that your Value at Risk is the total Replacement cost value.

What happens if your property is overvalued for Insurance purposes?

If your Property is overvalued, your insurance premium will be higher than what you should be paying and your Insurance Provider will only pay out the actual replacement or reinstatement cost in the event of a total loss, and only the actual cost of replacement or reinstatement of the damaged portion of the property.

It is therefore essential to ensure that your Value at Risk is the total Replacement cost value, and that you are not paying a higher premium without any benefit.

How often should Insurance Valuations be done?

Insurance Value at Risk is dynamic, and replacement costs change due to inflation and fluctuations in rates of exchange, in the case of imported elements in a Property’s DNA.

It is essential to review your Value at Risk as a minimum on an annual basis to ensure that you are insured for the true Replacement Cost.

Why are Square Metre Building Cost Rate Valuations not recommended for Replacement Costs?

Square Metre Building Cost Rate Valuations are NOT accurate computations for Insurance Value at Risk as they DO NOT  accurately reflect the DNA of a Property. Properties with the same floor area, but with different shapes, floor to ceiling heights, external and internal finishes have completely different square metre building cost rates. Applying a low rate to a square metre area will result in under-insurance, and a high rate will result in over insurance.

Which Professions are best equipped to undertake Replacement Cost Valuations and Damage Claim Assessments?

Quantity Surveyors are trained Professionals and are pre-eminent in the field of Replacement Cost Valuations and Assessments.  They are required to meet legislated and prescribed educational standards and practical experience before being eligible to register with the South African Council for Quantity Surveying Profession, and to practice as Quantity Surveyors.

It is this Standard and Code of Practice, that make the Quantity Surveyor the most qualified Professional to undertake Replacement Cost Valuations.

How are Insurance Claims for Damages Quantified and Assessed?
Insurance companies’ contract “Loss Adjustors” and or Quantity Surveyors to inspect and quantify damages in-loco, prepare cost estimates for damages or replacements, and or obtain competitive prices from Contractors.

In the event of total loss, Insurers often contract Quantity Surveyors directly, to obtain competitive prices from major Contractors.

How are Claims for Damages Settled with Insurance Providers?

The level at which insurance claims for damages are settled, is dependent on the terms and conditions of the Insurance Policy and Schedule, taken out by the Property Owner. These will consider inter alia:

  • Insured Value at Risk
  • Exclusions
  • Limits of liability
  • Excesses
  • Co-payments

The Insurers will obtain a valuation of the loss or damage, and will assess the payout relative to the insured’s Policy Schedule and then present the Policy holder with a Statement of Assessed Loss or Damages.

The valuation of the damage claim is often cause for disputes, resulting in independent third-party assessors being contracted by the insured, to assess the value of the damages.

The insurer and the insured’s assessments and counter assessments, are settled between the parties (or representatives), or by arbitration or court proceedings.

It is therefore essential that Value at Risk and Policy Schedules, are clear and well understood by Property Owners, to avoid expensive dispute resolution.