Rebuild costs for Landlords Insurance are now higher than market value?

Last time I checked one, the rebuild costs were estimated by ABI as around 2.5 times the market value of the property. This level of difference seems to be quite common, and I was told that it's almost always the case that the rebuild cost will exceed the market value because it includes the cost of demolishing the existing building, making the site safe, clearing all the debris, and preparing for the actual rebuild. (It may also include works to prop up or otherwise protect adjoining properties).

Get an RICS surveyor to do you a valuation and re-build valuation. Useful for your building insurance policy.

Prices vary from £500 plus VAT to £1500 plus VAT though.

Then index link for the next 5 years and redo

Reply to the comment left by Robert M at 27/02/2023 - 11:42
Yes, but the market value includes the value of the land so surely this should be higher than the re-build cost?

Desktop rebuild cost assessments are a lot cheaper and can be arranged online. For example, rebuildcostassessment.com. That's where I checked mine. BCIS calculator is too much of a guess in my book.

Reply to the comment left by Robert M at 27/02/2023 - 11:42"Last time I checked one, the rebuild costs were estimated by ABI as around 2.5 times the market value of the property" Uh??
For most properties, especially newer ones, the rebuild cost is less than the open market value (OMV). This is because the land value is a large part of OMV.
Sometimes, rebuild costs are higher than OMV, e.g. with an older property or one with site access problems.
What owners should realise is that OMV and rebuilding cost are quite different and they should obtain a rebuilding cost valuation to ensure their properties are insured for the correct amount.

Reply to the comment left by Ian Narbeth at 27/02/2023 - 14:35
It was August 22 when I checked, and for a 1 bed mid-terraced cottage in Worcestershire, the rebuild cost was around £268k, whereas the OMV is around £115k. The rebuild cost was done using the rebuild cost calculator on https://abi.bcis.co.uk/

I was also surprised at the rebuild cost, but when I queried it with the insurance company they gave the reasoning about it including the demolition and clearance costs.

Reply to the comment left by Robert M at 27/02/2023 - 14:54
On renewing a landlord policy this month I noted the terms have changed and the insurer now states that in the event that the cost of clearing the site and rebuilding is greater than the OMV only the OMV will be paid out.

The reinstatement value has never been related to market value.

Whilst market value includes the land on which the house sits, there are so many factors to consider.

A terraced house, for example, could incur costs of shoring up neighbouring properties if damaged by fire. The value also has to consider a partial loss - it is unlikely that any insurable event will create a greenfield site on which to rebuild. There will be costs of partial or full demolition before any rebuild or repair can begin.

There is a risk of being under insured as insurers will not pay out the full amount of repairs, even if the amount being claimed is less than the insured amount (e.g. if underinsured by 50%, they will only pay out 50% for any loss).

BCIS is a guide, but a proper building surveyor is best placed to give the value - and will be insured.

Reply to the comment left by Robert M at 27/02/2023 - 11:42
In common with other subscribers, my insurance premiums, based on the ABI/BCIS valuations, increased by a staggering amount.

Rather than worry about calculating rebuilding costs, I found insurers with a more pragmatic approach. After all insurance is based on “pooling” premiums/claims. I found two with a more reasonable approach. On my individual properties, Aviva provided unlimited building cover, and Homeprotect (underwritten by Axa) provide cover of £1m, for a considerable saving on a Lloyds broker renewal premium.

Out of interest what if a fire in your property destroys an adjoining property which is isn't insured, presumably you are liable to for re-instatement costs?