How to budget for a valuation and compare quotations

Some sectional title owners may feel they are being pressured into yet another expense since insurance valuations became a legal requirement through the Sectional Title Schemes Management (STSM) Act, activated in October 2016. It is important to remember is that the true intention of the STSM Act is to remedy many of the shortcomings that may currently be the cause of sectional title owners losing value in their property investments.

The new legislation also establishes a fresh source of income for many valuers who previously never considered concerning themselves with insurance valuations. Consequently, the market was flooded with opportunists who are not experienced or qualified in this field. Unfortunately, the law does not specify the required merits so crucial in taking on a community scheme valuation. To make matters worse, most trustees typically choose the lowest quote they can find, not realising the potentially dangerous situation to which this expose both themselves as well as the body corporate.

When selecting a valuer, one has to consider more than only comparing the cost. A more sensible and comprehensive assessment must include additional factors such as Professional Indemnity insurance.

The reality is that some valuers may charge R2,800 and others will only charge R800 for the same job but in both cases, you may only get a 1-page “valuation certificate” that is hardly worth the paper it’s printed on.

We have compiled a few pointers to help you to easily spot the bad apples:

  • Quotation: Does the valuer’s quote offer any information about the valuation process? Does it provide details on what is included for the quoted fee?
  • Experience: If the quotation doesn’t include VAT, it may be an indication that the valuer’s annual turnover doesn’t require them to be registered for VAT which in turn indicates a low level of experience.
  • Professional Indemnity: If a valuer’s professional indemnity certificate shows that they are covered for anything less than R15 million per event, it means that they are not genuine sectional title valuers as they are not committed to providing proper cover to their clients. A sincere valuer will be insured for at least 10% of the replacement cost of the largest buildings which they frequently assess. This means that they will need at least R10 million worth of Professional Indemnity cover if they regularly work with buildings valued up to R100 million.  If the valuer does not offer adequate recourse in the event of an incorrect valuation, it may have potentially grave consequences for the body corporate and ultimately, the trustees in their personal capacity.  (Click here to read more about this important topic.)
  • Reputation: Does the valuer specialise in sectional title valuations, i.e. do they have a thorough understanding of the law governing these schemes? Can your scheme’s managing agent or insurance advisor vouch for their integrity and quality of their work?
  • Valuation Report: Does the valuer’s report come with a detailed breakdown of how the replacement cost was estimated? Does the report include a Schedule of Replacement Values as described by rule no. 23.4.b of the Sectional Title Schemes Management Act No. 8 of 2008 (page 51)?

It is advisable to budget around R3 000 - R6 000 for a professional, comprehensive valuation depending on the size of a body corporate. Bear in mind that this expenditure is only necessary every 3 three years. Once this is secured in the budget, trustees may no longer feel compelled to pick the cheapest service provider.

Please contact us if you have any further questions.



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How to budget for a valuation and compare quotations


With the Sectional Title Schemes Management (STSM) Act activated in October 2016, sectional title owners need to have insurance valuations done every 3 years. We look at how to go budget for this expense and the factors one must keep in mind when selecting a valuer. The key words are: professional indemnity insurance.



What the sectional title law says about valuations


In this blog we highlight the key information for bodies corporate in the Sectional Title Schemes Management Act (STSM) No. 8 of 2011, including what a sectional title valuation ideally should entail.

Escalation of Buildings Insurance


When an insurance policy is due for renewal, many financial advisors will recommend a fixed annual escalation rate of 10%, sometimes even 15%. Does this reflect reality? What if the original sum insured was incorrect to begin with?

Trustee liability in the event of underinsurance


When a body corporate member suffers a financial loss due to an averaged or refuted claim as a result of underinsurance, the member is likely to seek alternative ways to recover the shortfall.

Elected trustees have a fiduciary duty to ensure comprehensive insurance cover and the affected member may consider seeking legal recourse against the trustees.

Chain of responsibility

On their part, the trustees will refer the matter to the valuer, appointed to determine the estimated total replacement cost for insurance purposes. Should the valuer be unable to represent his valuation against the insurance company’s assessor, the matter will be brought to the attention of the valuer’s professional indemnity insurer who is liable for financial damage incurred by their client in performing his duty as a valuer.

Theoretially, the aggrieved body corporate member will have a good chance of recovering the amount by which they were short-paid due to underinsurance, provided that the last party in the liability line is adequately covered or has sufficient funds to reimburse the claimant.

However, the following scenarios will put this theory to the test:

Scenario 1:  The appointed valuer holds insufficient professional indemnity cover or nothing at all.

In this case, the financially damaged homeowner can take the trustees to task for not ensuring that the valuer has adequate professional indemnity cover. At this point, the trustees may present the matter to their own indemnity insurance but their insurers may very well refute the claim if it can be proven that the trustees acted negligently. If so, the trustees will be held personally liable for the financial loss suffered by the body corporate member. This may result in prolonged and painful proceedings for all parties concerned.

Scenario 2:  The trustees failed to obtain a professional valuation.

This will be an open-and-shut case as the law clearly prescribes that a valuation must be obtained at least every three years according to the Sectional Titles Schemes Management Act No. 8 of 2011, rule no. 23. In disobeying the law, the trustees have acted in bad faith and in gross negligence.

Therefore, it is imperative that portfolio managers educate the trustees on the legal aspects of body corporate insurance. They should also advise the trustees on the attributes to look for in a valuer and how to budget for a valuation. Moreover, the trustees must also demand such vital guidance from their managing agents.


Our next topic: How to budget for a valuation and how to compare valuer quotations.

How the lack of an insurance valuation leads to averaging


Without an updated insurance valuation, you could find yourself being underinsured and facing averaging by your insurer. As a trustee, you have a fiduciary duty to obtain an updated insurance valuation to ensure adequate insurance cover.