This article about quantity surveyors and strata insurance valuations has been supplied by Wayne Stevens, UOAQ President.
The UOAQ has two suggestions regarding strata insurance valuations:
Obtain more frequent valuations from quantity surveyors
Find a quantity surveyor who charges less for follow-up valuations.
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Many bodies corporate in Queensland already are obtaining independent insurance valuations on a more frequent basis than the traditional “every 5 years”. Relying on actual valuations – rather than insurers’ estimated annual increases – minimises the risk of costly and unnecessary over-insurance.
Some bodies corporate may be reluctant to go down this path because of perceived cost eg if a 60+ unit complex paid about $1,200 for their last valuation they may assume it will cost a similar amount every time they get a fresh valuation.
This is not necessarily the case. While some quantity surveyors insist on charging a full-service fee for every valuation, others offer substantial discounts for their follow-up valuations.
There are three basic types of insurance valuations:
Initial, full-service valuation requiring site visit, say $1,200 for a 60+ unit complex
Follow-up valuation with site visit, say $800 to $900;
Follow-up desk valuation without site visit, say $450 to $550.
All three options provide a professional, reliable valuation with full indemnity cover. The only difference is cost.
It is useful to understand that when preparing insurance valuations, quantity surveyors perform two core functions in logical order:
Survey the quantities.
Attribute a $$$ value to these quantities.
The first step is the most time consuming and demanding because no two buildings are identical. Each building requires a site inspection, access to the building plans and measurements, etc. Once these quantities are acquired and recorded they generally do not change from one valuation to the next unless there are substantial structural modifications to the building.
The second step is based on the current cost of these quantities. It is driven by prevailing market forces. This step is largely systems-based, relying upon various on-line construction cost indices available to quantity surveyors.
Without trivialising this step in any way, it mainly involves a ‘push of the button’.
With or without a site visit, the cost to the quantity surveyor when conducting follow-up valuations – where they already know the quantities and all they need do is update the values – is obviously much lower than for an initial full-service valuation. This allows them to pass the savings onto their clients, who in turn can obtain more frequent valuations with minimal cost.
This post appears in Strata News #261.
Check The Actual Annual Increase Before Renewing Your Strata Insurance
We would all be aware of the ‘At Least Every 5 Years Rule’ for insurance valuations. These independent valuations are compulsory and provide a reliable basis for establishing the Building Sum Insured (BSI) for our annual strata insurance.
Difficulties emerge when determining the appropriate BSI for those intervening years between valuations.
Traditionally, bodies corporate have relied on the annual uplifts suggested by strata insurers. When construction costs are rising at a steady rate – which they generally do – it is safe to accept the suggested annual uplifts.
Risks emerge when construction costs become volatile, particularly over an extended period.
Available records confirm that from late-2013 until mid-2016, annual increases in Queensland’s construction costs were tracking at about the same rate generally offered by the insurers, ie 5%.
Unfortunately, industry sources now advise there has been a sustained, downward trend in these annual increases since they peaked at 5% for the 12-month period ended June 2017. For example, down to 3.8% for the 12-month period ended September 2017, through 2.0% in the 12-month period ended March 2018, to just 0.7% for the 12-month period ended December 2018. Construction costs actually went backwards by -0.2% in the quarter ended December 2018.
This would suggest that anyone currently accepting an annual increase greater than 2% – including a small margin for error – may be over-insuring and thereby paying too much. (This current trend is similar to – but not as dramatic as – what happened when QLD’s construction costs virtually flat-lined in the 4-year period after the 2009 GFC.)
The Unit Owners Association of Queensland is recommending it would be prudent to obtain independent professional advice when considering what, if any, annual uplift they should accept when renewing their strata insurance.
The UOAQ notes that it is already becoming common practice for many bodies corporate to obtain more frequent valuations, eg every 3 years. The cost of the valuation – a relatively small amount for the larger complexes – may be easily offset by the savings from avoiding even a 1% compounding error in the BSI.
This post appears in Strata News #237.
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