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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.