Reinstatement cost

[mitsandscarf]

I’ve purchased a lovely house and it came up on the survey that to build it from scratch it would cost 30 grand more than what I’ve bought it for. My solicitor has raised this as a query. I’ve bought it cash. I feel like I’m missing something, is this a problem? Would I not just ensure the building insurance is at the reinstatement quote?

The insurance amount will be more because if it did need to be rebuilt there’d also be the clearing up of the house (or remains of the house) first.

I’m stunned that your solicitor has raised this.

I couldn’t understand it myself. She said “reinstatement costs should be less than the market value”. I said what if the market crashed then loads of houses market value would be less than it would cost to rebuild the house. I just don’t understand where she is coming from!

Not a dig at you, but she sounds thick. Are you sure she’s a solicitor? There’s not a gentle whimpering coming from a locked cupboard is there?😂

Reinstatement is a completely different figure to market value. If the house burnt to the ground you need to cover making safe and clearance of the site, architect/surveying and project management fees, plus the actual rebuild cost, which vary considerably depending on the build materials, stone/brick/original features etc. I'd seriously be worried about a solicitor who didnt know this.

My (listed) house has a reinstatement cost that's like 1.5x its value, because rebuilding the while thing from scratch to the conservation officer's expectations would be a pricey business. Didn't bother my lender, insurer, or conveyancer a jot.

🫣🤭. Well we normally email but today she rang me as I specially asked what the issue was with this reinstatement query. When I said I’ve done a bit of research and found blah blah..::and she was like “oh? I wasn’t aware” and this is the only bloody query that’s holding things up, she’s now asking for documentation of when the seller got a mortgage on it to show the reinstatement valuation. Can I not just say to her I want to go ahead??

When I get building insurance what do you recommend? Shall I base it on the reinstatement value? This is the first time I’ve bought a house cash and I’m starting to feel out of my depth!

My husband is a surveyor and I’m pretty sure that I’ve heard him say that a house price to be rebuilt is based on land/materials/workmen’s costs?

I’m think that it’s based on roughly a 3rd for each?
so if a house worth £300,000 burnt down, you’d still have the land value of £100,000, the materials to rebuild £100,000 and the workmen’s wages to rebuild it £100,000. There might be some fluctuations in the figures due to economic reasons. If some materials are in demand or there’s a shortage of workmen but I think that the land value would stay much the same.

I’m happy to be corrected if someone more a qualified wants to come up with a better answer!

Cost to Rebuild a House by Region

The estimated cost to rebuild a typical 1,400-square foot home in the UK is £296,000 in 2023, up 21% from £244,000 at the end of 2021. The cost you'll pay, should you need to rebuild, depends on where you live. Those living in the North East and Yorkshire and the Humber pay the least to rebuild—a house in Leeds or Durham costs around £269,000 on average to rebuild.

UK House Rebuild Costs by Town and Region Estimate
Durham North East £269,000
Leeds Yorkshire and the Humber £269,000
Birmingham West Midlands £280,000
Peterborough East of England £280,000
Derby East Midlands £280,000
Manchester North West £284,000
St Austell, Cornwall South West £295,000
Guilford South East £332,000
Wandsworth London £373,000
Average £295,778

I thought reinstatement would be cheaper than market value too. The land value would vary depending on the area but would still make a difference. Building a standard home from scratch with just materials and labour doesn't cost much. If the build wasn't cheap, there'd be no new builds in cheaper areas, it wouldn't be profitable.

Thankyou for your response, I’m just trying to figure out why this seems to be concerning for my solicitor, if I insure it at the reinstatement value then surely this means I’m covered? Surely the issue would be if I insured it for the market value?

she couldn’t seem to answer the question when we spoke on the phone!

I work in property insurance

Reinstatement and market value are mutually exclusive.

Market value is simply what the market is prepared to pay for the property

Reinstatement is the cost of rebuilding the property

In some areas the market value exceeds the rebuild value. We bought a property in Scotland and the market value was about a third of the rebuild value.

I'm surprised a solicitor was unaware of the difference

Thankyou for your response, do you think this will be an issue? Am I panicking over something that is normal?

It's completely normal as the market value and reinstatement value will generally always be different.

For insurance purposes you need to insure on a reinstatement basis as that's the true cost of rebuilding your property in the event of a loss.

Having looked at a few reinstatement costs over the years for work they are not at all linked to the market value of the property. They essentially include the cost to demolish the building and rebuild the property plus professional fees and vat. Land value isn't linked neither is the market value. You may have had the reinstatement figure included as part of your valuation but the likelihood is this is a guide and possibly done by the valuation surveyor and that for a more detailed RC you would need to instruct a building surveyor. They would consider the build, listed nature, special features, some of which is likely to be in line with bcis figures. Yes there has been a rise in house/property prices but build costs have go e up and up and are still rising, hence why RC.

Why rcs have also increased. This wouldn't be the first solicitor to ask the same question either.

Maybe your solicitor is new but you’d think that she could ask a colleague for a second opinion? There are online calculators that you can use to work out reinstatement costs.

I’m surprised that the survey said that it would cost more to rebuild than what you’re paying for it?

So is the survey not taking into account what the land is worth?

Unless it’s a listed building then in theory to rebuild it should cost much less than what you’re paying as part of your purchase price is the land?

looks like she’d like to see what the figure the current owner has it insured for in the unlikely event that it ever needed to be rebuilt, usually the rebuilding cost would be less. So she’s querying why the survey is saying more.

Is it an older building/ stone built? When I bought my house the reinstatement costs were £170k more than the cost of purchase. When I was sorting out insurance the bloke told me stone built houses are always expensive to reinstate.

Its not something a regular builder could take on , you’d need a specialist and those cost a fortune.

It’s a newer build, only 20 years old

For insurance purposes the best option is a policy with no reinstatement figure, which provides an unlimited sum insured. If the worst happens it covers the cost to rebuild, so you dont need to worry about being under insured. There are so many factors which cost money in the event of needing to rebuild which are more than just the bricks/mortar and labour costs. Project management fees will be at least 10% of the rebuild cost for eg. Planning/building warrant costs, architect fees, asbestos surveys. You could have an old property with a lot of original features, on a difficult to build on site, (limited access for eg), which could have a low market value as it's in a non desirable area, but it would cost a fortune to rebuild.

Thankyou so much for your response. This is great information! I will make sure this is what is included when I get building insurance. I feel out of depth with all of it!