These questions are about reinstatement and replacement insurance for Victorian owners corporation buildings.
I came across the below bolded paragraph in one of my emails recently which was sent as advice to an OC manager, the advice was provided by a reputable insurance broker to the OC manager who in turn sent the same text to its OC committee.
The advice was “Legislation requires that the building is insured for full replacement and reinstatement value, consequently, we recommend a valuation be obtained from a Sworn Valuer a minimum of every 3 years, with increases, as instructed by the Committee, during this period”. The problem is, there is no such person as a ‘Sworn Valuer’ mistake number 1, mistake number 2 under the current legislation Owners Corporations Act 2006 Victoria, Section 65 Valuation of buildings there is NO reference or mention of a ‘Sworn Valuer’ anywhere, except to say the following 1) A prescribed owners corporation must obtain a valuation of all buildings that it is liable to insure. 2) The valuation must be obtained every 5 years or earlier as determined by the owners corporation. 3) The owners corporation must present the valuer’s report at the next general meeting after it is received. There is no definition in the Owners Corporation Act that states the required qualifications of the valuer.
The Act is silent on the qualifications a valuer should have, therefore any person who considers themselves of having expertise in providing a replacement and reinstatement valuation is permitted to do so provided they can show their clients that they hold appropriate Professional Indemnity insurance to cover their replacement and reinstatement valuations from a reputable insurer.
Yet Insurance Brokers often recommend to their clients to obtain replacement and reinstatement valuations from sworn valuers when there are none, a sworn valuer as such doesn’t exist, a property valuer is not licenced nor registered with any government department in Victoria. These Sworn Valuer are simply property experts who have had extensive on the job training or may be new graduates just starting out and learning the ropes, these valuers have undertaken academic property related studies. These valuers are commonly engaged by financiers to ascertain a properties current market value generally for mortgage reasons etc, these valuations are carried out after a property has been purchased or in some cases, valuations need to be backtracked to a specified date to assist compulsory acquisitions and courts and etc to settle property transactions.
Property valuers gain their recognition by virtue of being accepted as members of privately run institutes and once they become members they gain the title, for example, one institute the Australian Property Institute (API) offers its members to apply for Certified Practicing Valuers (CPV’s) status. This simply means they have undergone some in house training and work experience requirements set by their institute. A Certified Practising Valuer according to API “is a person who, by education, training and experience is qualified to perform a valuation of real property” (basically the saleable value of a property at a specified date which is arrived by investigating comparable sales data of similar properties in a given area). A Certified Practising Valuer Certification is attained when a member meets the institute’s educational and experience requirements and provide reports for review and sit a professional interview.
API certified valuers are not registered or licenced by any government departments. In my view, a licenced estate agent in a given area of expertise is likely to provide a much better valuation than a valuer who purely depends on past comparable sales data and isn’t aware of the supply and demand for property in that given area, in my view an independent market appraisal from a licenced estate agent in a given area of expertise is likely to be more reliable and up to date.
‘Sworn Valuers’ or ‘Certified Valuers’ are recognised by all major financial institutions; financiers still continue to use them in this day and age. However, with today’s technology, the way forward will be via a mobile phone APP that will provide a properties market worth. Financiers will soon wake up to the fact that Council valuations are updated by the government’s valuer general’s office on an annual basis, these valuations are used for council rating purposes and Land tax assessments, therefore these valuations need to be so accurate for these reasons. A simple tool such as imputing the council valuation data from the council rate notice even into a simple excel spreadsheet will provide accurate market value on any property.
The current Owners Corporations Act 2006 in Victoria under section 59 clearly states:
Reinstatement and replacement insurance
- An owners corporation must take out reinstatement and replacement insurance for all buildings on the common property in accordance with this Division.
- The insurance required under subsection (1) is insurance for damage to property under which the owners corporation insures for—
- the cost necessary to replace, repair or rebuild the property to a condition substantially
the same, but not better or more extensive than its condition when new; and - the payment of expenses necessarily and reasonably incurred in the removal of debris and the remuneration of architects and other persons whose services are necessary, being incidental to the replacement, repair or rebuilding of the damaged property.
- the cost necessary to replace, repair or rebuild the property to a condition substantially
For these reasons conducting a replacement and reinstatement valuations is completely different to market value. The persons best qualified to provide replacement and reinstatement valuations in my view are construction cost experts that can estimate the cost necessary to replace, repair or rebuild the property to a condition substantially the same, but not better or more extensive than its condition when new; and estimate the payment of expenses necessarily and reasonably incurred in the removal of debris and the remuneration of architects and other persons whose services are necessary, being incidental to the replacement, repair or rebuilding of the damaged property. In reality, a replacement and reinstatement valuation should be seen as a quote from a builder to rebuild what was lost in accordance with section 59 of the Owners Corporations Act 2006.
In my view these requirements can only be met by the use of a registered building practitioner with building registrations as a Domestic Builder Unlimited and Commercial Builder Unlimited. General valuers endorsed by private institutes in my view do not have the necessary skills to undertake replacement and reinstatement valuations to meet the requirements of section 59 of the Owners Corporations Act 2006.
Paul Cummaudo
Roscon Group
E: [email protected]
P: 1800 767 266
This post appears in Strata News #517.
Have a question about reinstatement and replacement insurance or something to add to the article? Leave a comment below.
Read next:
- VIC: Q&A Owners Corporation Insurance Requirements Victoria
- VIC: Q&A Underinsurance, Building Sum Insured and Strata
This article is not intended to be personal advice and you should not rely on it as a substitute for any form of advice.
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I’ve onlly just been made aware of the requirement to have a valuation every 5 years. I was going to find a certified valuer. Are you saying I should use a building professional instead?
A quantity surveyor is the correct professional to provide a valuation for the purpose of replacement and reinstatement.
Quantity surveyors are registered building practitioners in Victoria (and probably the rest of Australia). They hold professional indemnity insurance and they provide signed bills of quantity (also known as cost estimates).
Check the VBA website for more detailed information.