Two Queenstown property professionals are cautioning homeowners about under-insuring houses.
Quantity surveyor Henry Scaife and valuer John Scobie warn that unless individual estimates of a home’s replacement cost are obtained, owners could lose out big-time if disaster strikes.
“That’s a firm yes,” Scaife says.
Scobie agrees: “Most people look at [house replacement costs] on a very basic level.”
They may tot up rebuild estimates in dollars per square metre, Scobie says, but overlook demolition costs, price escalations, professional and consent fees, or inflation.
The Wakatipu pair is highlighting the matter as a sea-change sweeps across New Zealand’s house insurance scene.
As the New Zealand Herald put it last weekend: “The new ‘sum insured’ system started last year after the Canterbury earthquakes revealed to insurance companies and their reinsurers that they had little idea of their true liability because no dollar values were put on houses. They were merely insured for full replacement cost.”
Homeowners must now nominate a specific sum insured – and an insurance company’s payout is capped at that, regardless of actual rebuild costs.
If homeowners don’t specify a new sum, insurance companies use a “default sum”.
Default sums are based “on average or ordinary build quality and on the home being on flat land”, NZI says in an explanatory booklet.
A broker warns clients: “This default sum isn’t likely to meet your needs as it doesn’t take into consideration construction materials, quality, location, recreational features such as tennis courts, swimming and spa pools, and retaining walls.”
Scobie and Scaife also warn online calculators on insurance company websites are only valid “for a standard house on a flat section”, as Scaife terms it.
“As soon as you get something a bit more complicated”, Scobie says, it’s “difficult” for online calculators to be accurate.
For example, a sizeable proportion of Wakatipu homes are built on hillsides, the local property pros point out.
Scaife: “For a house built on a steep site, or anything non-standard such as an architectural home, online calculators wouldn’t be accurate.”
Scobie: “There’s a higher chance of error, no question.”
Scobie and Scaife may be pushing their services for insurance estimates but their doubts about online calculators are borne out by figures sighted by Mountain Scene for a Queenstown Hill property.
With a gross floor area of 286 square metres, the “improvements” – that is, buildings – are estimated by Quotable Value for rating purposes at $455,000.
By comparison, the online calculation tool used by both NZI and Vero estimates replacement at $881,000.
However, the homeowner recently commissioned a detailed replacement appraisal from a local professional – his estimate was $1,466,000, two-thirds more than the online calculation.
Scaife, who is the local office manager of Rhodes & Associates, says appraisals by a quantity surveyor typically cost between $1150 and $1725.
Colliers International’s Scobie says a valuer’s assessment starts around $700 – he says he can’t safely ballpark an upper limit.
Both professionals back their sectors’ appraisals – Scaife says a quantity surveyor’s number will be “very accurate” while Scobie says valuers “hope to be within plus or minus five per cent”.
Insurance warning: John Scobie (left) and Henry Scaife.