Reinstatement Costs Explained
Reinstatement costs estimate how much it costs to completely rebuild a property from scratch. When you hire a property surveyor, they will conduct an inspection of the interior and exterior. They will provide various cost estimates, including the reinstatement cost. This is beneficial and essential information for your insurance company to know. This is because they will be footing the bill if your property is ever destroyed.
In this guide, we’ll be taking you through everything you need to know about reinstatement costs. This includes what they are, why they are important, and how they are different from the market value.
What are Reinstatement Costs?
The reinstatement cost is a cost estimate that determines how much a property would cost to rebuild if it is destroyed. This is calculated in case your property is completely destroyed and is important information for your insurance company to know. This is because it will contribute to your building insurance cost. You may see the reinstatement cost referred to as the reinstatement value or rebuild cost.
Most insurance companies will ask for the reinstatement cost. Therefore, it’s important to make sure that they are included in your survey report before you apply for property insurance. The rebuild cost can have an impact on your insurance quote.
How to Find out my Property’s Reinstatement Costs?
If you want to find out your property’s reinstatement cost, you will need to hire a surveyor to conduct a reinstatement cost assessment. The assessment is part of the valuation, meaning that you can expect to see the reinstatement cost as part of your survey report. Your reinstatement cost assessment should be conducted by a surveyor who is regulated by RICS.
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How are they Calculated?
There are many factors that are considered when calculating the reinstatement cost. This includes the materials and labour, the electrical supply, and the central heating installation. It’s important to remember that the rebuild cost is not the same as the market value of the property.
Asbestos
Asbestos is a big problem and a common house survey issue. If any asbestos is found, it will need to be removed as soon as possible.
Local Authorities
Local authorities may request fees when dealing with complex properties. This can include properties that are located near main roads or have restricted access.
Location
If the property is located in a conservation area, this can also have a major effect on the reinstatement cost.
It is advised that reinstatement cost assessments are conducted every three years. If you are undergoing major changes in the property, it’s also advised that an assessment is completed. This ensures that your insurance company is up to date on any changes and will provide cover in case of any incident.
How are Reinstatement Costs Different to the Value?
A common misconception is that the reinstatement cost is the same as the market value. However, this is not the case. There are major differences between them that are important to know. Your surveyor will calculate both costs. The factors considered for each are different.
Market Value
The market value is determined by more external aspects. The market value is determined by the condition of the property, its age, and its location.
Reinstatement Cost
The reinstatement cost is determined by multiple construction-related costs. This includes the cost of materials, labour, clearing the land, and reinstalling any facilities among others.
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Should the Reinstatement Cost be Higher than the Market Value?
Reinstatement costs tend to be higher than the market value, although this isn’t always the case. This is because homes are usually built as estates nowadays and the cost is spread across multiple properties. Therefore, when building a singular property, the costs are more focused and specific. This can drive the cost of materials and labour up.
Older properties and listed buildings can boast higher rebuild costs. This is because the materials used in construction may be difficult to source. On the other hand, new build homes may have lower rebuild costs because the materials used in construction are more commonplace.
Why are Reinstatement Costs Important?
Reinstatement costs are important because they provide a cost estimate for rebuilding your home from scratch. The worst thing that can happen for a homeowner is their home being completely destroyed. Therefore, insurance companies demand to know the rebuild cost in case this happens. Most insurance policies will therefore cover you against the rebuild cost rather than the market value.
Bear in mind that your insurance company is not guaranteed to pay out the full reinstatement cost amount. In some cases, they may pay out a portion of the cost. Therefore, it’s best to bear this in mind when choosing your insurance company.
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