Upon visiting the site, we observed an upper middle-class house with standard finishes and the Indian Ocean in full view from the living room and balcony. Following a physical inspection of the building, we assessed its insurance value to be approximately R4 300 000 excluding the moveable contents.
Upon receiving our detailed valuation report, the customer demanded a full refund as he believed our valuation to be far too low. He bought the property four years prior for just over R7 million and was currently insured for R9 million. He had expected our valuation to be even higher.
The location of his property is highly desirable and the land value alone constitutes a substantial portion of the market value. However, a house of identical design and finishes in a middle-class neighbourhood without the scenic view would hardly yield half the market value.
Therefore, while the view and location increased the market value – the value the home will sell for on the open market – the insured value only needs to reflect the cost to rebuild the house as it stands currently.
In the event of total destruction, it will cost approximately R 4 300 000 to reconstruct the house to the same specifications including demolition costs, rubble removal and professional fees. At a sum insured of R9 million, the customer was over-insured by 110%. This means he could have saved a substantial amount in premiums, had he been insured for true replacement cost over the past four years instead of for market value.
Keeping the sectional plans up to date at all times is beneficial to the body corporate and individual owners alike and, besides being adequately covered, ensures that every owner is apportioned the correct levies.