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Why Are My Reinstatement Costs Higher than My Home Value?

20 August 2014

News Category 1

A quick look at property forums reveals that one thing is of constant concern to new property owners. After you have had the necessary surveys carried out on the property you intend to purchase, you will have several key pieces of information at your fingertips. Two of those key facts will be the property’s market value and its Reinstatement Cost.

A question that homebuyers often ask is ‘Why is my home’s Reinstatement Cost higher than its market value?’

It looks worrying, but don’t panic. It’s perfectly normal, and many property owners will be in the same boat. So what does it actually mean?

What’s a Reinstatement Cost?

If your home is destroyed through some kind of accident, such as fire, it will need to be rebuilt. Your insurance company needs to know how much money it would have to pay out in these circumstances in order to rebuild your home. The cost of reconstructing the property to its prior condition is the Reinstatement Cost; this is how much you will get from your insurers to cover the materials and labour required.

For more information, read this article outlining reinstatement costs.

Why is my Reinstatement Cost higher?

Reinstating your home means rebuilding it to its original condition. In doing so, all efforts will be made to ensure that the same construction methods and materials are used as before. In the case of unsuitable materials having been used in the past, such as asbestos, safer alternatives will be used.

Because the price of many materials often rises over the years, something which may have cost very little when your home was built could now be very expensive. The same goes for labour costs – with inflation pushing up the cost of living, wages have had to rise too. This means that employing the same number of labourers to construct your home as before will cost more than it did originally. It could also be that advanced, specialist equipment is used to speed up jobs where older technology was used. Add on the additional costs tradesmen may now have to consider in the form of insurance and health & safety that they may not have had to consider a few decades ago.

So when you add up all the different costs, it is more than likely that rebuilding the same home will cost more the second time around than it did originally. This is why your Reinstatement Cost could well be higher than the market value of your home. After all, the market value does not have to take into account the actual cost of the materials and labour required to build the home, simply what the property is worth as a whole, finished product.

Have all the information at hand when purchasing a property

A top quality surveyor will be happy to explain to you what everything means; Allcott Associates, use experienced surveyors who are qualified and accredited - get in touch today for property peace of mind.

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