Building Reinstatement Cost Assessments With Richard Pegman
Perito: Welcome to the Cardoe Martin Podcast, the A-Z of Building Surveying giving you the lowdown the world of building surveying. In this episode we are going to have a chat with Richard Pegman a Director at Cardoe Martin. Welcome Richard.
RP: Hi James.
Perito: It’s good to have you on board thank you very much for coming along.
RP: Thanks for having me.
Perito: (0.15) So first things first then tell us a little bit about who you are and what you do at Cardoe Martin.
RP: I’m a Director at Cardoe Martin, I deal with all kinds of work, I basically cover professional areas and contract administration so a very varied workload from party wall, dilapidations, building surveys and contract administration work.
Perito: (0.38) Thank you very much for that, now it’s time for our lucky guest to endure the quick fire round. Richard if you’ve listened to any of the previous podcasts you may be familiar with this otherwise it will be a nice surprise, you’ll have about a minute or so just to say the first things that pop into your head and the idea is to make a little fun before we get into the detail. So top three favourite things about building surveying?
RP: Top three, well I’d say the variety of work that you can complete, the kind of places you visit, so the kind of buildings that you get there and you have the opportunity to look at some interesting buildings and finally (laughter).
Perito: (laughter) that’s alright we’ll skip over No. 3, don’t worry. (1.25) Now question 2 then No. 1 thing you know now that would have been useful when you started out?
RP: I would say it’s not just about the technical knowledge in building surveying quite often you’re dealing with investors with investors, with owners, developers and dealing with those relationships is almost as important as the professional work itself and the technical side of things.
Perito: (1.55) Good response Question 3, No. 1 thing you get asked all the time by clients and customers?
RP: ?? One thing, I would say probably No. 1 would be how soon can you get out there to look at this issue and when are we going to get our report.
Perito: (2.12) Good timeliness is the key. Favourite music track, album, radio channel to listen to whilst working?
RP: Whilst working?
Perito: If you do of course.
RP: Yeah I prefer not to listen to music while working, I have to have silence but I, yeah, Radio 4 is my radio station of choice on that one.
Perito: (2.34) Final question Rick or Malty, assuming you even watch it?
RP: No I don’t watch it. (laughter)
Perito: (laughter) That’s alright. (2.42) Okay, so join us now for a journey through time and materials as we give you the lowdown on BRCA’s or Building Reinstatement Cost Assessments. So Richard first question what is a Building Reinstatement Cost Assessment or a BRCA?
RP: Well basically a BRCA it’s a calculation of the total sum that’s to be paid to cover the demolition and rebuilding of a property following a total loss as a result of an insured peril.
Perito: (3.15) So it sounds quite detailed then why is it necessary?
RP: It’s necessary to ensure any factors that may affect the declared value are considered and included for so should insurance occur, under insurance occur, insurers may reduce claims/payments made and even for a partial loss this is something that’s called average so any shortfall would need to be made up by you as the insured if you’ve not an adequate declared value for your policy.
Perito: (3.45) It’s the sort of thing that I would get if I owned a house, residential house, commercial, it affects everything, cos I’m guessing my insurance would, if the house burnt down, that’s pretty much what it is it’s basically saying your house is worth £240k therefore you would come out and do an assessment and the value would be da da da. Is that about right?
RP: It’s not related to the value so if you’re talking about the monetary value that your house would on the market it’s not that, it’s what the actual rebuild costs would be and associated professional fees and demolition so it’s that figure that relates to insurance and to make sure that your covered for enough to rebuild the property.
Perito: (4.25) Okay great thanks for that. So Richard when do I need to get one?
RP: The RICS recommend that BRCA’s are undertaken every three years whenever any extension or significant alterations are made to the building to maintain an up to date declared value so in practice it’s recommended that a full valuation involving inspection be carried out every ten years and that a desktop valuation, assuming there’s been no change to the building, is carried out every three years.
Perito: (4.59) What happens if I don’t get one?
RP: So if you don’t get one, you basically there’s a danger that you may be under insured, so as previously touched on under what’s referred to as average any claim may be reduced if the property is not adequately insured, so for example if a building’s damaged by fire and the repairs to put it back in its pre-loss condition comes to £100,000.00 and the buildings insured for a sum of £1 million most building owners would assume that they’d have adequate cover, however it doesn’t quite work like that, if the insurer can establish that the cost to rebuild the property fully would be £1.2 million then potentially there’s inadequate cover in place and the claim could be reduced via condition of average clause, so the percentage of the under insurance in that example 20% would come off the, basically the sum that you’re paid to deal with the loss.
Perito: (6.00) So conditions of average are they taking a median price or there is someone got a pen in a map and just put a crock on it and or is it picked out of thin air, how is that calculated?
RP: They’d be taking into account what your current sum insured is, your declared value and then would be, if the insurer can prove that there’s not, it’s gonna cost more than what you’re actually insured for so it might be that their using some kind of pricing book or pricing mechanism or that the BCIS figures to show that in reality to rebuild the property would cost more than you’re actually insured for presently.
Perito: (6.39) That’s useful thank you. If we talk about BRCA’s in a bit more detail and what’s involved in undertaking a BRCA?
RP: Okay there’s quite a lot involved in undertaking them and not all of its whilst your own site so once you’ve got an instruction the first thing to do prior to visiting would be spending some time researching the site so that could be looking at Title Deeds, plans, maps, any of the information that’s available and this is to understand that the layout and the footprint of the building before you actually get to site and to understand what you’re going to be looking at. After that you’re onto the inspection and the purpose of that is to find important features and information as you walk around and you look at the property so you’re basically gaining an appreciation of the development, the inspection will consider any restriction on demolition were you to be undertaking rebuild works and also taking into account things like party wall considerations or special protections that may be required, so once you’re familiar with the property you’re then at the measuring stage which depending on the use of the building will either be based on IPMS or the GIFA of the building, IPMS is the International Property Measurement Standards, GIFA being Gross Internal Floor Area so you’re looking to capture that information so you’re aware of the full area of the building including terraces, balconies and any other features like that.
Perito: (8.15) So you’re literally just going around with kind of a tape measure or a laser measurer and assessing the square footage, it’s that type of thing?
RP: Yeah that’s it, you might be using, so some developments you might have scaled drawings that you’ll be using as a basis but you’ll be taking check dimensions but it really just depends what information is available but that’s it yet, if you’ve not got that you’ll be going around and measuring it up and then once that’s done it’s about putting a plan, a drawing together to calculate the footprint of the development and work out the number of floor and storeys and also listing out other features such as walls, fences, gates, garages and roads and plants as well as any other special features that you need to be taking into account, and once you’ve done that, once you’ve got your area, you’ve gathered all the information and calculated the building areas, what you do is you apply the appropriate rating method with the building area multiplied by a suitable reconstruction rate so that gives you the declared value of the property, then they’ll need to be an addition for demolition costs which would apply in a total loss situation and also factors such as proximity to roads or waterways, restricted access and the need for any propping or shoring will need to be taken into account and also you need to apply professional fees.
Perito: (9.44) Is it expensive to get things taken down and taken away, because I’d always kind of fancied wrecking balls and diggers (laughter) and things being a child. It looks fun but I’m guessing it’s still quite difficult to do, still quite a technical expertise and therefore has a cost.
RP: Exactly so a lot of it depends on the nature and the construction of the building and its location so whilst you might want to sort of let yourself loose with the wrecking ball you can’t really do that if you’re on a restricted site, if you’re close to a river or a canal or roadways, there’s restrictions on what you can or can’t do, noisy works and things like that, so it’s about taking those factors into account so that you’re using the most suitable demolition options for the building and taking into account the cost implications.
Perito: (10.32) Moving onto the next question then can I do this myself. I guess there must be tons of online tools BICS or BCIS you mentioned and I guess if I mention BRCA’s is there going to be a guide online and why would I hire a surveyor to do this if I can do it myself?
RP: So for more straightforward properties, particularly houses, it is possible to do things yourself online and to calculate the rebuild cost so the primary sort of points to go to for this is the BCIS website. BCIS basically stands for Building Cost Information Service and this provides rebuilding cost guidance and a rebuild calculator that can be used to arrive at a rebuild figure so the BCIS is part of The Royal Institution of Chartered Surveyors and is effectively their construction cost division, but I would stress that this type of calculator is generally designed for more basic buildings and construction methods and unless it’s something very straight forward, if you’re dealing with a Listed building or there are site factors that are going to have an effect on the rebuilding of the property, we’d definitely recommend that you seek specialist advice.
Perito: (11.51) That’s useful cos I’m guessing if you do things wrong yourself with this calculations repercussions if things go awry?
RP: That’s it yeah, I mean under or over insurance basically so there’s implications on a pay out that would be made to you to undertake the works, if you’re not insured for the correct amount.
Perito: (12.12) So is a Building Reinstatement Cost Assessment value the same as market value, we’ve touched on this originally earlier in the podcast, is it the same?
RP: It’s not no so they’re completely different, so the BRCA is purely for insurance purposes, it doesn’t relate in any way to a sale price or a market value for what a property is worth in its current state.
Perito: (12.36) That’s great, that’s useful info, thank you. Does the assessment make an allowance for inflation?
RP: No it doesn’t, when an insurance valuation is completed most policies are on a day one basis whereby the insurers state a percentage uplift to be applied to the declared value to cover inflation during the insurance term. Any subsequent period for the design planning and tendering reconstruction works isn’t factored in, another factor is that index linking will apply at each renewal and providing a Reinstatement Assessment has been undertaken within the last three years the insurers should reinstate the property fully depending on the conditions of your policy.
Perito: (13.18) That’s great what shall I do if I need a Building Reinstatement Cost Assessment done, what are my first steps and what shall I look out for?
RP: I’d contact Cardoe Martin in the first instance.
Perito: (13.28) I think that’s good advice there. You’ve been tuned into Cardoe Martin’s A-Z of Building Surveying Podcast, thanks for listening and thank you very much to Richard Pegman for joining us today.
RP: Thanks very much.
Perito: And giving us the lowdown on Building Reinstatement Cost Assessment otherwise known as BRCA’s.