How regular building valuations can save your strata money and heartache

What is a building valuation?

A strata building valuation is an independent expert's assessment of the value of your property now and its projected value in the next few years. In Victoria, strata schemes greater than three units must have a building valuation at least every five years, but even in states where they're voluntary, it's it is prudent that a valuation is obtained every two to three years.

Since the valuation will determine the cost of replacing the building if disaster strikes, and bringing it back to the standard it was beforehand, it's important to ensure that everything is considered such as:

Building replacement: this not only includes the building and other common areas, but also any improvements made to individual lots (there's more about this below)
Rectification costs: such as the cost of demolition, removal of debris (especially any asbestos), and site preparation
Other property costs: for example, the cost of replacing fences, pavement, carports and shared recreation or entertainment facilities used by residents
Professional fees: which could be for engineering reports, architects, legal expenses, etc
Cost escalations: these arise because of new compliance requirements, inflation or even a shortage of tradespeople or materials sometimes due to a Catastrophe
Delays: due to environmental, legal or planning issues etc
Public liability and personal property damage: for any injury or damage that occurs on the common property.

Can a body corporate insure against any of these?

In addition to the building and public liability cover included in a standard Flex residential strata policy, Flex also offers optional cover for two of the issues above. So, while some body corporates are happy with the basic residential strata cover, others prefer the reassurance of greater cover and include additional options in their policies to cover potential problems such as:

Catastrophe, namely the extra expense of engaging skilled tradespeople when a major disaster has occurred and there's a huge demand on the building industry. This option kicks in when a catastrophe has been declared by the government. It also covers reasonable accommodation costs if residents need to rent a home elsewhere while the property is being rebuilt.
Lot owners' fixtures and improvements to make up for any shortfall between your building's estimated replacement cost and its actual replacement cost when an individual lot owner has made improvements to their unit before the disaster, but didn't supply the details to the body corporate, or the owner underestimated the replacement value.

How do you calculate the value of a building?

A professional valuer is called in to make an assessment of your entire strata property. They're skilled at taking into account everything that might need to be replaced after a disaster, and calculating the costs of doing so. They'll also factor in inflation, current and future compliance costs, fees and charges, and even demolition, debris and site restoration expenses.

It's important to remember that detailed valuations not only help prevent under-insuring, but they can also indicate where a property is over-insured and the body corporate is paying too much for its cover.

So, once you've had a valuation, make sure your residential strata insurance is adjusted accordingly.