INSURANCE REINSTATEMENT COSTING

Part-and-parcel of every valuation prepared for lending institutions, such as Building Societies and Banks, is a reinstatement figure for insurance purposes. If such an institution is lending a sum of money on the security of a certain property it obviously wishes to ensure that that property is properly protected by way of building insurance. This figure is calculated by the Valuer and inserted as an integral part of his mortgage valuation report to the lender.

The fundamental feature of an insurance reinstatement figure is that it is a "cost" and not a "value", another common misconception. "Please can you do us a reinstatement valuation" is a common (incorrect) request. It is a mathematical calculation whereas the valuation of the property has recourse to the vagaries of the property market, supply and demand and comparable evidence. The difference can be illustrated by way of a simple example. A small but beautiful, superbly located three bedroom cottage on the edge of a top class village with a babbling brook in the garden, two acres of wonderful grounds and with far-reaching Southerly views may sell for, say, £250,000. However, because the cottage is quite small it may only cost £75,000 to re-build. In the event of fire, or other such destruction, you do not re-build a view, a location, two acres or a brook. There are elements of a property that contribute to value, such as views, garden size and location, but which have nothing to do with cost. As a very general guideline, in the Bath area, the value of a modern house is likely to be greater than its re-building cost whereas the value of a Listed Grade 2 Georgian stone townhouse fronting the pavement may be less than the rebuilding cost.

Broadly speaking, insurance reinstatement costings are calculated by applying a multiplier (a £ rate per square metre) to the gross floor area of the building, adjusting for stone construction, multiple chimney stacks, multiple bathroom or kitchen fittings, double glazing etc., and adding in for garages, conservatories and significant outbuildings. Other adjustments have to be made where applicable if the Valuer considers costs may be raised, such as if the building is pavement-edged and fronting a busy road or if there are large stone retaining walls. If the building burnt down then the cost of re-construction would be higher due to the need for traffic control for perhaps 3 months. If the building is Listed as being of architectural and/or historical interest, or if it is located in a Conservation Area, then this would almost certainly raise costs also.