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Calculating a home’s rebuild cost

GSI Insurance

When searching for Home Insurance, one of the questions you will always be asked on the buildings side is what the rebuild cost of your property is.

Insurance companies do not have the expertise to decide this for you, so the onus is on you to provide a sufficient figure.

The rebuild cost is particularly important, as it is the amount the insurer will have to pay out if your house is damaged beyond repair, such as in a fire. This ensures that if your house has to be completely rebuilt, there is enough cover in place to put you back in the same situation you were in before.

Is the rebuild cost the same as the market value?

While it is possible, it is highly unlikely to be the current market value or the price you paid for it.

The rebuild cost will need to take into account the cost of materials, labour, and any associated fees – The existing site will need to be cleared of debris, and will also include survey costs, and any replumbing or re-wiring that may need to be carried out as well.

Generally, the rebuild cost will be less than the market value. For example, the land that the property sits on is still in place and in your possession, and that in itself carries a value. A plot in a highly desirable area will carry a considerable amount of worth in itself, and in extreme examples, the cost of the land may even outweigh the cost to put the structure up.

Construction methods may also come into play, with certain types of build being more expensive and much more time-consuming to put up. Neighboring properties can also play a factor, with terraced or semi-detached houses adding additional complications.

Be extra careful if your property is a Listed Building. With the increased cost of materials and potentially very specialized labour required to complete the construction with traditional methods, the cost could be drastically inflated. Online calculators are generally not accurate when dealing with buildings of historic significance.

What are my points of reference?

  • Previous Documentation – A previous mortgage valuation, a pre-purchase surveyor’s report, or even the title deeds to your property may give you a clue. It is well worth keeping in mind that these could well be out-of-date, with the cost of materials and labour changing constantly. If the documentation is not recent, it is well worth considering other options. For example, supply chain issues created as a result of COVID-19 have increased some rebuild costs in excess of 15% within the space of two years.
  • Hire a chartered surveyor – This will include a visit to your home, and is likely to be the most accurate figure you are likely to obtain, but also the most expensive, with the service likely to cost several hundred pounds
  • Use a rebuild calculator – A way of obtaining an estimate online. The BCIS Rebuild Calculator for example is a free service that provides you with three figures based on the level of “fit-and-finish” of your property. While this particular tool draws on the experience of the Royal Institute of Chartered Surveyors (RICS) there is some margin for error. It relies on the amounts you enter being correct, and nobody will visit your property.

What happens if I don’t get my rebuild cost right?

If you choose a coverage that is too low for your requirements, then it is known as underinsurance. It means in the event of a claim, the cost may outweigh the maximum limit that the insurance company can settle.

Even if the claim amount is still within the policy limits, the insurer is still likely to apply an average clause to any payout. For example:

A property is insured for £180,000, and suffers £24,000 of damage due to a burst pipe.

The rebuild cost, following assessment, should have been £200,000.

The property is covered for 90% of what it should be, leaving a 10% ‘underinsurance gap’

The £24,000 payout would be reduced by 10% to £21,600 – Leaving you liable for the £2,400 difference.

In very extreme cases, insurers may refuse the claim and void the insurance completely, if it’s seen as a deliberate attempt to reduce insurance premiums.

Any other points to consider?

  • Renovations and improvements particularly if they are of a structural nature not only add value to the sale price, it will also likely increase the rebuild cost of your house. For example, if it costs £100,000 to build, you can expect to add at least that value onto your existing rebuild cost. It’s also worth remembering that if you haven’t started work already, not all insurers allow for renovation work as standard, so you might need a more specialist renovations insurance policy
  • Flats or maisonettes if freeholders and leaseholders decide to combine insurances onto one policy are not as straightforward as taking one flat’s rebuild cost and multiplying it by the number of units, and often can’t be run through on online calculators. Using a surveyor could be the best approach
  • Blanket covers are when an insurance company will automatically give you “up to £x” which is usually an amount well beyond the cost to rebuild an average-sized family home, for example, £500,000 or £1,000,000. If you are concerned about being underinsured, this may be a peace-of-mind option for you, even if the cost is a little higher.

Last updated January 2022

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