Ok… if Thursday was International “Talk Like a Pirate” Day – today is “Grumpy Middle Aged Quantity Surveyor Wants to Have a Rant” Day…
…and it’s all about valuations of buildings for insurance purposes i.e how much will it cost to rebuild a property if it burns down.
Don’t fall asleep just yet, stay with me.
A couple of years ago I purchased an office for Washington Brown in Pitt Street, Sydney.
This is our head office now and when I was doing my due diligence prior to purchasing the building, I looked at the strata notes and discovered that the building was insured for $70 million dollars.
$70 million dollars!!!
I didn’t have the plans…but based upon my 20 years of experience – my initial reaction was “that seems a bit high”.
About 2 weeks ago I received notice that the Annual General Meeting was coming up. I looked through the notes and saw that a new valuation was tabled to be approved and that the building insurance valuation was approximately $30m!!!
WOW – Then at the meeting I learn that in the last year or so there were 3 estimates prepared and they were $70m, $50m and $30m respectively.
That’s some serious discrepancy don’t you think? How can this be?
So here’s why I get my back up: Most building’s insurance valuations are prepared by Property Valuers, who in general, do not have (and are not required to have) the level of construction cost estimating skill that Quantity Surveyors have.
I suspect most valuers don’t even inspect the property let alone take into account varying factors such as the floor plate layout, the floor to ceiling height or the ground conditions (generalising I Know – but probably right).
I assume they simply get the strata plan and apply a rate of construction cost from a guide like Rawlinsons.
Funnily enough, when the ATO deliberated over which industry was best-suited to estimate construction costs for depreciation purposes, they identified Valuers as NOT being well-suited for this work.
Specifically, a valuer with a construction cost guide is simply just not good enough.
Rant over! The Moral: If you want a more accurate building insurance valuation – use a Quantity Surveyor – not a Property Valuer.
And get a quote here