Keystone Blog

A large percentage of our work is insurance appraisals for both residential and commercial properties. Unfortunately, some of that work is done after the structure has been destroyed and often the insurance policy was not enough to replace it. Having insurance does not mean the insurance company will pay whatever it costs to replace it. It is wise to check your policy and make sure it is up-to-date.

Replacement cost does not mean market value, tax assessment value, or even what it originally cost you to build.

What is replacement cost? Well, one description is: the amount to construct a building which provides similar utility, using contemporary materials, standards, design and layout. However, there are other consideration such as cost to not only remove debris but the cost to prepare the site for rebuilding, building codes that have changed since originally built, additions, renovations or other improvements that can result in a more expensive rebuild or has not been considered in your insurance policy.

Market value and assessed value for taxation purposes include the land value. Replacement value does not include land value. You may find that replacement cost may even exceed what you paid for it for various reasons such as:

• Labour and material shortages increase costs;
• A builder often constructs more than one home at a time to take advantage of economies of scale. Thus the cost to construct a single home can cost more;
• Economies change which affect market value. In a down market it is typical for the cost to build to be lower than what can be realized in the market;

On our last family visit to the Okanagan, my mother and father were discussing their insurance policy on one of their rental homes. The insurance company wanted to increase their coverage. He thought it was too excessive. However, when we looked at it we determined it was not enough. The best way for us to describe it to them was to consider the roof they had recently replaced on the home they live in. It cost 5 to 6 times more to replace it then when it was originally built. Cost of materials and labour had gone up but there was removal and dumping fees to consider.

How do you know if you have enough insurance? Your insurance provider will be able to help as they have numerous tools at their disposal. Make sure you inform them of any renovations etc. that you have done. You may also want additional insurance to cover you in times of higher inflation. You could also hire a professional appraiser.

The Insurance Bureau of Canada has a great site with helpful information: http://www.ibc.ca/en/Home_Insurance/Home_Insurance_Explained/itv.asp

Also, just a reminder that you will be receiving your assessment notice for taxation purposes in the early part of January 2011. Our course dates have been set. For more information, click the link below:
http://www.keystoneappraisals.ca/AppealYourAssessmentCourseDates