Thanks for your detailed reply. I went looking … my memory hasn’t served me like I’d hoped though it doesn’t surprise me completely - I am over 50 etc etc …
Paid $385 for one in the outback about 4 years ago - 6 pages. It was to sell, and it was spot on the money, but detail was lacking in a way, but it was what I’d call a ‘compressed and information rich’ presentation rather than waffly …
Another probably a year older - 25 pages, $880. Was also spot on the money, needed it for tax and to sell. Not as compressed but still information rich.
… as described by a lay-person (me) who’s not really into real estate, but thankfully checking my experience reset the values more to what you described, which was interesting and good to clarify.
It’s interesting what tricks memory plays … “and I may tell myself, this is not my beautiful house” (apologies to David Byrne)
Despite the expense, it’s good we can all relate where the value is in using these professionals. Just don’t mention solicitors and lawyers, or insurance brokers?
Suncorp owns both AAMI, and APIA. APIA while at times can be a higher premium it can also offer some benefits many other policies don’t. One I remember well was that no matter how old the carpet is, the fridge, the TV etc that the new for old always applies. Many new for old policies from others have a time limit eg if more than 5 years it isn’t new for old but rather either not covered or with a usage discount applied in some policies. So the no time limit new for old can be worth the higher premium.
I also remember that some insurance policies of various companies have “Averaging Clauses”, this means that if you underinsure and have an event eg a fire causes say $70,000 damage but you are underinsured on your property so it only covers 2/3 of the real value, then the insurance company will “average” their payout so that you only receive as the example 2/3 X $70,000 = $46,667. Underinsurance is considered to be when your insurance cover is less than 90% of the real value. So to underinsure is a big risk if that clause exists in your policy.
ASIC have a section on the risk of underinsurance:
In this section they also state that “Total Replacement” policies have a lower risk of underinsurance and so may provide better protection. It may be possible to get an “Extended Cover” policy that offers up to an extra 30% above the insured value in the case of total loss and so may reduce some of the risk of underinsurance.
ASIC also have some sage advice about how to use the web calculators very similar to that provided by Choice but not as in depth:
Today I put details for our house into a few online home insurance calculators. Oddly they all came up with values slightly above the cost to buy other similar properties nearby that have sold in the last year. I think this is odd because typically half the value of real estate is in the land which i cant see how you would loose that unless you were on the seafront and it was washed away. Are they deliberately overinflating the rebuild cost to generate higher insurance premiums? Is this something choice should look into?
The first point to make is that the sale price of a home on freehold land has little relevance to the cost of the replacement of the home. In some areas, it is far cheaper to buy a older home than build a new one…an example being a rural town where there is net population loss and houses can go very cheaply whereby the cost of buying land and building is comparatively more expensive. Prices are typically driven higher or lower by population growth, demand and supply.
When one also buys an existing house on land, the valuation or selling price is not based on the value of the house + unimproved value of the land. The valuation or selling price is based on other comparable sales in the areas. In some circumstances, particularly with new house and land packages or off the plan sales, the valuation after the sale can go down as more similar homes come onto the market causing increased supply, pushing down prices. These forms of sales packages can also have inflated sales prices which factor in overall market price increases between signing a contract and receiving the keys after construction. This is often why lenders treat house and land/off the plan sales as higher risk than other forms of home sales.
The second point is there is are significant number of home owners who take out home (and contents) insurance and are underinsured. Underinsured meaning that if they lost all of their house and/or contents through a fire for example, the payout from the insurer for such a claim would not be sufficient to replace the home/contents lost in the fire. Underinsurance is not a good outcome for either those being insured (as they would need to cover the difference in replacement costs) or insurer (reputation impacts).
In recent years, insuruers have used more sophisticated cost estimates to determine the replacement value of a home should the whole home be destroyed through a claimable event. These calculators consider far more than the raw cost of building replacement. There are a wide range of other costs which also heed to be considered such as demolition and disposal costs, site preparation, council fees and charges, renting during reconstruction, higher non-standard construction costs and the list goes on. These costs can substantially increase the cost of home replacement and aren’t considered in the sale price of comparable homes in the area…and can add up to 10s if not 100s thousands depending on the site specific conditions.
In the past insurers used a meterage estimate to determine insured value (e.g. $xyz/m2 for a basic home, $abc/m2 for a higher spec home, $ghi/m2 for architecturally designed luxurious home). Such method had failings has they didn’t include a wide range of other costs hich occur when a house is replaced, and as a result could lead to underinsurance.
While overinsurance is equally not very good as one has to oay a slightly higher premium for it, it is possibly better than underinsurance especially if a event results in the full destruction of a home. It is nearly impossible to get a 100% accurate replacement costs for a home unless one commissions an expert in the field to provide such an estimate (not these are estimates and not actuals as there will be unforeseen costs or contingencies). It is also worth noting that the experts advice would only be current on the day it was issued as costs change over time.
There is one industry recognised estimators is Rawlinsons. Rawlinsons can be avaikable in some libraries, especially those such as University Engineering libraries. This book is considered a invaluable resource for estimating construction costs by the industry (and possibly the insurance industry in their calculator).
One can also chose to insure ones home for less than calculator estimate, but this comes with the risk of underinsurance.
I looked at 4 calculators from different insurers, that either were the same (Cordells) or looked the same in that they asked the same questions in the same order. It wouldn’t surprise me if they all used the same one. I only went all through one and that gave me a rather high value.
I have a value of the property from a few years ago including land that was a similar figure. My area is regional and does not have great rises or falls in value. In my case I would say the land is about half the property value. In many cases in capital cities it would be much more.
However there are many pitfalls in comparing rebuild price to market price even if you can isolate the land value.
The calculators say they are the re-build price and so they do not include land. They do however include demolition of the old house and some other fees that I don’t understand, plus GST.
I am not sure what to make of all this, there are so many imponderables. If I was to take on the project I would be asking an expert to evaluate the calculator directly and leave out all the rest of the complications.
If as I surmise they all use Cordells and it is very inaccurate it would be odd if nobody in the estimating business has come out and said so. Let’s not get into conspiracy theories, competitors do like to dish the dirt on each other especially if they have some evidence of professional incompetence.
Building and construction costs can vary considerable between different locations and sites around Australia.
It’s no surprise that a one size fits all calculator may not give the expected answer. Typical estimating methods assume a margin of error.
They are most likely to estimate high to cover the uncertainty and generalised basis the estimate is based on.
If possible one useful step assumes that there are builders, and possibly display homes in your area. It might need a few hours to visit one or two. We looked to a similar size and style of home as we would choose to replace ours with from the standard designs. Each builder has pricing from standard through to upmarket spec finishes.
This would provide a guide to the base cost of a replacement house excluding site demolition, remediation. Planning and Approval plus certification costs should be included by the builder or available as a separate cost estimate. A one of non standard design as a replacement is far more difficult to estimate reliably. It could add 25%, 50%, or even double the cost.
Some forget that there are other assets such as septic/waste water treatment plant, fencing etc that may also need to be considered. Cyclone ratings, high wind areas for exposed sites and bush fire ratings also need to be considered as specific to a site. Many existing houses do not comply with the current design rules due to age. Any replacement needs to be built to meet the latest standards. Hence these factors also need to be allowed for.
though it doesn’t surprise me completely - I am over 50 etc etc …
