Should a catastrophic event occur, condo owners want assurances the value of their home is protected. Awareness of the value of your building, and if it is properly insured, is important.
Condominium corporations maintain insurance for their property and activities occurring on premises. Valuation at $56,000,000 or $143,000,000 are astronomical to owners who value their own home at perhaps $750,000.
For a building with 250 units and an average sale price of $650,000, $162,000,000 represents market value. Insurance valuation reflecting replacement value can be dramatically lower. Replacement value reflects the cost of replacing a building and its contents. Communities with shared common areas may have a separate insurance policy and valuation for these spaces.
An insurance appraisal is a formal estimate or opinion of value on a property as of a specified date. It is based on replacement cost for the standard unit – which excludes owner possessions, additions or enhancements – and common areas. This requires a physical inspection, review of the building architectural and site plans, and current construction costs. A comparison is made of construction costs of similar condominiums to ensure the insurable value is correct.
Once an insurable value exists, the amount may be adjusted annually to reflect inflation. This should be based on construction costs which have been rising at about double that of the consumer price index in recent years. Every few years a building will be revalued to ensure annual indexing does not create a distortion.
Consider the example of two nearly identical buildings, one built in 2001 and the other in 2021. Despite the difference in age, both should have a nearly identical insurable value in 2025. Yet not everything remains equal. One community may have nicer finishings, expanded common areas and other enhancements increasing unit resale value over the other community. Replacement value will also have increased to reflect common area enhancements.
This article was prepared with assistance from Condominium Insurance Solutions. The company provides insurance to condominium corporations.