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Bank Val 90k lower than insurance they want

Discussion in 'Property Finance' started by Otie, 25th May, 2016.

  1. Otie

    Otie Well-Known Member

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    Just want to see if this is normal, about to return loan docs for a refinance, however the bank want a certificate of currency for our building insurance that shows a figure of $390k, however the valuation the bank did valued the house at 300k.

    Realistically if the house burnt down and we had to rebuild/landscape etc, we would get change from 280k

    I just want to know if it's normal to have to have insurance for 90k more than they valued the house at and at over 100k more than it would cost to re build it.

    They said they use a formula based on $1800 per m2.
     
  2. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    I don't recall a bank ever requesting for insurance cover to be higher than the valuation result.
     
  3. Otie

    Otie Well-Known Member

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    Sorry I misunderstood the val report actually says; market value: $300,000, replacement insurance $390,000

    My question is why the difference between the two, and why do they have the replacement value so much higher than the actual cost to replace?
     
  4. tobe

    tobe Well-Known Member

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    Ive seen it, took it up with the valuer who explained having to rebuild a new 'period' home to replace the derelict 'dump' would cost heaps more. He also went on about demolition costs asbestos etc.
    In practice your insurance premium wont vary much and if you still feel strongly about it the bank isn't going to check if you change the replacement value or even cancel the insurance after settlement.
     
  5. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    I know that it would cost more to rebuild my house than what's the building itself is actually worth. It's a bit of a dump, most of the value is in the land. Our rates notice suggests the building is worth $150k. We're currently getting quotes for knockdown and rebuild (some awesome plans) for around $500k.
     
  6. Sonamic

    Sonamic Well-Known Member

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    It's not uncommon. One of mine just built late last year cost me 185k all in to build (house component). Including fencing, driveway etc. "Requires" a 225k Coverage. Not as high as your 90k, but you're not alone.
     
  7. Marty McDonald

    Marty McDonald Mortgage broker

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    Just get it then reduce it in a few months if you have an issue with the $$ amount of cover
     
  8. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    often : )

    And there are sometimes sensible reasons

    can you really replace the dwelling like for like inc demo and dump costs, et al for less than the amount requested?

    more to the point how much higher is the premium?

    ta

    rolf
     
  9. Otie

    Otie Well-Known Member

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    Actually that's a good point- I didn't think of demo/disposal costs. In the end it didn't matter, didn't cost me anything to increase the premium. Didn't realise but was already insured for 320k anyway so the bit extra didn't make the premium more expensive which surprised me.
     
  10. Dazedmw

    Dazedmw Well-Known Member

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    In many cases the insurance figure and the valuation amount don't have much in common. If the building is older, most of the value will be in the land while the insurance amount will include costs of a modern replacement building.

    As others have mentioned the insurance costs includes demolition and disposal costs, professional fees (architect etc) as well as an inflation projection until the end of the policy and any approval/built time. So even if you could replace it for $X today the assessment will be higher due to inflation.

    I'm not 100% certain but the insurance assessment might be inclusive of GST as well.