When I use the various online home building value calculators I get results that are wildly over (100% over) what I can see on the project builder’s website to build the same house. I understand demolition and debris removal costs need to be factored. How can the Cordell Sum Insured calculator estimate $1,564,000 when the price to build new is $630,000?
Hi @WayneJ, welcome to the community.
Project build price includes building on a clean house site, with standard fixtures. For a completed project build house, it could be 10s of percentages more.
Insurance replacement costs include location adjustments, quality adjustments, other fixtures not included in the project build price, time adjustments (usually in natural disasters, building labour and materials costs increase substantially), demolition costs including foundation removal when damaged or doesn’t meet current standards, additional cost temporary tenancies (which can be very expensive in natural disasters), council approvals, property landscaping and the list goes on.
Insurance costs also are for a bespoke build, not a cookie cutter type project build house. Bespoke pricing is used because if the house is partially damaged, it won’t be full demolished and a tradie has to put it back together with the leftover parts.
I can’t comment on the differential you seem to have observed, but the addition costs to a project build can be significant.
The other point to make as estimators used by insurers are estimates. Using a project build cost will significantly underestimate the rebuild cost for insurance purposes. The only way to get better appreciation of rebuild costs is to use a quantity surveyor specialising in house rebuilds. This would need to be done annually and the cost will be significantly more than an insurance premium where the rebuild estimate is slightly higher than actuals at the time of the rebuild.
Without knowing what assumptions go into both calculations it is impossible to compare them. Even if all that is known you may be stuck with system A and system B having built in differences that cannot be equilibrated.
How did you arrive at the new build cost? When was this calculation done? If it was the actual cost of the build say 10 years ago the same green field build today would be very different. As others have said there are many other differences too.
It’s actually ‘today’s price’ confirmed on the project builders website and in an email this week. I appreciate it wouldn’t be a green field site new build. Just such a huge difference.
Appreciate the non ‘green field site rebuild’ points and associated impacts. Just seems like a huge difference and certainly a surprise.
Insurance Council of Australia make available the Cordell esitmator and include the following disclaimer.
“ The results from this calculator are an approximate guide only and should not be taken as advice or a recommendation to acquire any product or level of insurance cover. Typical building replacement costs are provided by Cordell Information Pty Ltd (A.B.N. 95 159 137 274) (‘Cordell’) and typical building contents replacement costs are provided by Sum Insured Pty Ltd (A.B.N 55 947 630 521) (‘SI’). Whilst every care is taken to ensure the accuracy of the information as a guide for costing, no responsibility is accepted by either Cordell or SI for its accuracy. Please check with an Architect, Builder, Quantity Surveyor, Valuer or other suitably qualified professional for an accurate estimate and consider whether you need to obtain financial advice before selecting an insurance product suitable for you. Insurance Council Australia Ltd (A.B.N 50 005 617 318) takes no responsibility for the costs provided by Cordell or SI, nor any liability for the accuracy of, reliance upon or use of the costs. You accept. You agree that your use of this calculator is at your own risk. By viewing or using the calculator(s), you are deemed to accept the above.”
I have bolded part of it, which is a similar recommendation as @phb has made further up.
Why does the cost vary so much from the new build you costed? Again, as @phb and @syncretic noted there are additional costs that a new build does not have to deal with (and these may vary greatly from the new build cost). The only way to get an accurate assessment for your particular location and structure, is to pay someone with the appropriate level of skill to come and do a formal evaluation for you.
Using the calculator for our property has the re-build cost around $500,000 more than it cost to build initially. This includes around $200,000 for professional fees and demolition costs. This means our house alone cost is roughly $300,000 more than the original cost to build just the house, not an unexpected difference as we had the house valued professionally this year that matches fairly closely the calculator estimate of that house only cost. We did the valuation because of a change in our shares in the property, and so the valuation was required for stamp duty purposes.
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That is another question altogether. Value is only slightly related to rebuild costs.
We got two valuations done both a market value and a rebuild valuation. We used the lower of the two values for stamp duty purposes. After getting the valuations we used the land and rebuild value of the house to determine our insurance coverage for the property. Getting both valuations to compare still reduced the cost of the stamp duty we had to pay by more than the cost of getting the valuations done. I can’t say that we would do similar valuations in future though, it might just be easier to use a market value as determined by a Real Estate business if we felt the need or use a calculator as it was fairly close based on results of the Cordell one.
From an insurer’s online quote system when you ask about ‘rebuilding costs’:
What is considered as rebuilding costs?
It is for building only not including land value or contents. Includes outbuildings, internal fittings and fixtures such as kitchen cupboards, light fittings, floor tiles and structural improvements such as an in-ground swimming pool, pergolas, decks, fences and tennis courts.
Note in their PDS the insurer states - up to an additional 10% of insured value for ‘professional fees’ and up to an additional 10% for demolition/removal costs. This reads that I don’t need to include these costs in the actual insured value.
Yes you need to include these in the costs of actual insured value.
Insurers often use a project manager to oversee rebuilds. Professional fees also include thing like town planners, building certifiers, architects, engineers, geotechnical engineers and such like. Demolition and removal costs are something which can’t be avoided and are included in the insured value. Both these costs can be substantial.
There are substantial risks of underinsurance. One such risk is you may be substantially out of pocket as insured value is less than actual replacement value. The other risk is an insurer may pro rata payouts based on the underinsurance. This means even if a claim is less than the insured value, they might decide to only pay 67% of the claim value if say the property was underinsured by a third.
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If your property has hazardous materials (asbestos is the main one), this can add very significant cost to a rebuild. That may or may not be of consideration, if it is a much newer build such as our’s then it has no bearing on the cost. Even so, in our case 10% for professional and 10% for demolition costs would still leave us significantly out of pocket, we could not rely on the “built in” safety net. Basing your insurance cover on a fairly accurate cost to rebuild is important.
An article that may help explain
https://www.rentcover.com.au/info-centre/how-to-avoid-over-insurance
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We are the same.
If a building has heritage listing, the cost of professional services can be a significant proportion of the rebuild costs.
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I am tearing my hair out with this topic as well.
We are a small (3-unit) strata complex voluntarily managed. Irrespective of accuracy, the Cordell calculator clearly states it is inappropriate for residential strata. There does not appear to be a ‘cost per lot’ calculation tool online either. With the increasing number of strata residences Australia-wide, you would think there would be something to use as a guide.
We paid several hundred dollars for an insurance valuation last year. They took photos outside but did not come inside nor enquire about the specifics inside any unit. The owner of one unit had just completed a full renovation with higher end fixtures and fittings which would not have been taken into account.
Just prior to this year’s insurance renewal, I had reason to contact the insurer. It was suggested we are significantly underinsured. I am having a devil of a time obtaining a new valuation or quantity survey for under $1K. As a small strata, we do not have that kind of money. Two of 3 owners are retired/pensioners.
I reached out to the Strata Community Assoc and received a reply today. In essence, I am back to square one. The advice was to go back to the original company (used last year) for an updated valuation, or shop around for a quantity surveyor who charges less. If the quotes I’ve obtained to date are competitive and indicative of the cost of an insurance valuation in this state, I’m not sure I’m going to find someone we can afford.
I imagine it’s much the same process but does anyone have any specific suggestions for strata residences?
Strata residences or multi dwelling complexes are very different to a single detached home. There are different responsibilities in relation to insurance unlike a detached home where the whole property is the responsibility of the owner.
Are you dealing directly with a insurer or a broker?
I wonder if it might be worth approaching an insurance broker that specialises in insurances for strata/multi dwelling complexes.
Such brokers will likely know what is required for assessing rebuild costs and whether there are calculators available for the type of complex you reside, whether there is a cost (percentage) increase which can be applied to the last valuation or whether a quantity surveyor needs to be commissioned. If a quantity surveyor is needed, they might also be able to provide names of some independent ones which may be able to assist you.
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What is the big fear of underinsurance?
Surely, if the insurer thinks their repair cost will be more than the insured value then they will just payout the insured value?
There is belief that this is the case, but, insurers can discount any claim made under the insured amount. This website explains:
https://www.bellrock.com.au/the-pitfalls-of-underinsurance-and-how-to-avoid-them/
This can mean that one can be out of pocket, in addition any excess, for any claim made. This may be done as the underwriter for the insurance policy assumes that the policy holder has decided to take on part of the risk associated with the insurance. Namely, the insurer takes on the insured amount and the policy holder is responsible for the uninsured amount. As a result, any claims are pro ratated based on the accepted risk.
One should never knowingly underinsurance. If one wants to save money on a premium, look at other options such as increasing excess or the level of cover (remove components which are optional if one is happy to do so and accepts the risks).
Edit: some insurance policies provide some buffer for slight underinsurance, by providing a percentage over which insured rebuild costs will be covered. Such percentages shouldn’t be used for reducing amount covered to reduce premiums, as this buffer is usually needed due to inflation associated with rebuild costs.
Some policies also include a buffer or allowance to meet the current building standards and codes. EG bushfire zone ratings, cyclone wind loadings etc.
These do change over time, typically adding requirements which can add cost to a repair or rebuild.
EG
Notable issues have arisen in recent years where councils/building regulations have required the whole of a partially damaged property to be upgraded to the latest. The trigger has typically been based on the proportion of the dwelling or floor plan area. The total cost to the insurer increases out of proportion to the damage.
