I often get asked this question when clients want to insure their structures with me. Firstly, insurance does not concern itself with the market value of your property, as this holds no bearing at all on the price it would cost you to rebuild your property. If I picked up a property from inland valued at R1 000 000 and plonked in right on the ocean with private beach access, you could probably increase the market value of this property around at least 3 or 4 times.
Regardless of whether you own a private stand alone home, or a commercial property, the same factors involving rebuild cost, demolition cost and debris removal, as well as professional fees such as the cost of drafting new architectural drawings need to be considered.
I always suggest to clients to seek professional advice from a valuations expert to establish the correct price that a building should be insured at. This valuation would also need to be reviewed every couple of years to ensure it stays within the market related figures of rebuild costs.
Sadly, this shortfall of advice being given upfront to clients proved to be detrimental in the Knysna fires of 2017. The fire damage was estimated to cost over R4 billion. The fire destroyed about 600 homes, displacing more than 10 000 people. The scariest stat to come out of the Knysna fires was that 50% of those homes weren’t insured, and the majority of the balance of insured homes were underinsured.
Do not do guess work on this valuation yourself – this is one of your most (if not the most) expensive asset you will ever own.