Sectional title insurance and the valuer

Determining the replacement value of a sectional title property is the responsibility of the trustees. This does not mean that trustees should try and estimate the values; it means that trustees should engage the services of a qualified valuer or quantity surveyor.

Recently, in another blog article on this website, we explained replacement value and compared it to other property values in some detail.  The replacement value is the current cost to reinstate a property to its original state if completely destroyed. It excludes the value of the vacant land itself.

The replacement value is usually determined by adding the estimated cost to replace the buildings (contract price), professional fees, demolition costs plus VAT.  A valuer will account for inflation during the year of insurance as well as during the actual reinstatement of the building. This aspect should be dealt with professionally.

Frequently Asked Questions:

Q: Who should value the property?

A:  A registered quantity surveyor or valuer should value the property; preferably one which is familiar with sectional title and the needs of the sectional title insurance advisor.

The valuers who are familiar with sectional title are usually either managing agents themselves and/or are affiliated to NAMA (National Association of Managing Agents). Such a valuer should carry PI (Professional Indemnity) cover.

CLICK HERE for a list of valuers in the Addsure network.

Q: How does one engage with such a valuer?

A: Contact the valuer via email or phone and provide some information about the property. The more information you can provide the valuer, the less research the valuer needs to do which will minimise the total cost of the valuation.CLICK HERE for a valuation request form with a list of possible information which can be provided.

Q: How often should a valuation be done?

A: We believe, for the average size complex between 20 and 50 units, approximately every three years. For small complexes, like duets or three units, a formal valuation may not be required but for more upmarket or complex construction, a proper valuation is still recommended. Larger schemes should be valued more frequently. Most often than not, bodies corporate can negotiate an on-going service whereby the buildings get properly valued every three years but annually updated with only a quick site visit by the valuer. Large schemes with 100 units or more, or R100 000 000 or more in value are probably best valued annually.

Q: We are not sectional title,but a HOA (Home Owners Association) and have only the common areas and a few out buildings to consider – do we need a valuation?

A: Especially in a homeowners association, we strongly suggest a valuation every three years or so. More often than not, HOA common areas and improvements are undervalued. Our experience has been that at claims stage, insurers often find HOAs which are hugely under insured and insurers do not hesitate to apply average. This means that the insurer will only pay a claim in proportion to the actual sum insured versus the actual true replacement value. In other words, if a building is only insured for 20% of the replacement value, the claim will only be paid out 20% of loss, less the excess.

Addsure places quite a bit of emphasis on the importance of the valuation. Read more about the process in The Sectional Title Insurance Guide – also available in hard copy format.

 

 

Author : Mike Addison

Contact Addsure – The Leaders in Sectional Title Insurance – to get fit and proper advice from advisors who understand sectional title. Contact us in Johannesburg on (011) 704-3858; in Durban on (031) 459-1795 and in Cape Town on (021) 551-5069