Reinstatement value vs market value

abi.bcis.co.uk/index.cfm#calculation

Rebuild costs calculator. Hope this helps.

We had a major house fire and had to move out for seven months while it was rebuilt. Only the outside walls and staircase remained.
We were told, I think by the builders, it would have been cheaper to just clear the site and start from scratch.

notanan, no argument over the new value you have introduced. All the lender is interested in is whether the house is worth more than the amount you want to borrow.

For example if you want to borrow £100K, providing the property is worth £150k the lenders are content. If the surveyor says the house is worth £475k and you are paying £500k, they are not bothered. However if you want to borrow £100k in a house you are paying £150k for that the surveyor says is only worth £75k, then you will not get the loan. The reinstatement cost is entirely irrelevant to all the above calculations.

You are right Monica. I shouldn’t have said it will always be less. Your example of a rebuild on a listed property etc costing more is bang on and I hadn’t thought of that.

Anyway Luckygirl, the lower reinstatement figure is very common and shouldn’t have any impact on your sale.

We won’t talk about the viru.....

M0nica its usually the same figure from the same survey which is used for both the lender to assess reposession value AND for insurance requirements.

A specialist property may have more separate specialised valuations but for most properties its just the two: market valuation and survey valuation. No 3rd valuation is usually required

I am the vendor in this transaction and the buyer has cash - no mortgage. As long as they still honour their offer (which is the same as the market value the surveyor has quoted) then I will be happy. All I need now is for the builder of the property I wish to buy to be prepared to wait till all this virus stuff is over.

Hang on, notanan you are confusing reinstatement cost with the surveyors value of the house. Those are two entirely different things.

House price = the price you have agreed to pay for the house, say, £500k
Survey price = what the surveyor says the house is worth compared with similar houses in the immediate area and its condition etc, say £475K
Reinstatement price The cost of rebuilding the house exactly as it is now, say £350k, or for a listed house £600k. This price will determine the level of buildings insurance your lender will insist you take out.

It can be a problem if someone is buying with a small deposit, but even then lenders do allow some difference between survey value and market value, just not more than usual.

If the buyer has a large deposit it makes no difference to the sale

The acceptable discrepancy allowed is stated in peoples mortgage offers and varies depending on deposit. So in terms of selling to a mortgaged buyer, the surveyers valuation in relation to repossession is the main thing that makes a practical difference to the sale in that context.

The purpose of the reinstatement value is to assess the level that the building insurance has to set at.

If you are paying £500k for a property, where the rebuilding cost is £350k, that is what the value of the buildings insurance should be. Why pay more?

If you are buying a Georgian house for £500k, where there are features in it that will be expensive to replicate, you may end up having to take out buildings insurance for £600k because that is what it would cost to rebuild it from scratch.

At any rate, whether the survey valuation affects the market valuation depends on whether the buyer is mortgaged, and then on the terms of the mortgage which specify the acceptable variation. This will usually depend on the buyers deposit. Bigger deposit = bigger discrpancy allowed.

But even with a low deposit, its acceptable for it to be lower than market value

Reinstatement cost is simply the cost of building the property as it is now on the land it now stands on. If you own a listed building, or just a statement Victorian house the re-building cost could significantly exceed the market value. We once owned a a large Victorian semi with eleborate brick and terracotta outer walls. The rebuilding cost of that definitely exceeded its market value.

The price a house sells for is, anyway, completely unrelated to how much it cost to build and is based purely on how much someone is prepared to pay for it. Take two identical 3 bedroomed 1930 semis. The price of such a house in a small Cumbrian town will be a fraction of the price of the same house in North London, even if you factor out the price of the land, the prices will still not be the same.

Its more to do with reposessions.

So the buyer/borrower might be willing to pay £400,000 for it, but the lender want to know if they can shift it if its reposessed (bearing in mind reposessions arent always well maintained by that point)

So the difference they will accept between survey valuation and market/paid valuation depends a lot on the LTV. It all about how much money they can be fairly certain of getting back if you default.

No the land is owned by the freeholders but there would be no cost of purchasing the land to rebuild the block of flats so you could remove that from the rebuild equation ?

I dont think its anything to do with the land because its the same for leasehold properties: their survey/insurance valuations are always lower than market valuation and they dont own any land!

Ah - the land! - I get it now. Thank you for that.

Mortgage offers specify how much less they allow.

Although most mortgage products are off the market for now. The only ones on offer are for people with >40% deposits, and at that kind of LTV lenders tend to accept very low survey valuations anyway

Its usually less

Reinstatement value is what it would cost to build it all over again if it burned down say.

But of course, you wouldn’t have to buy the land it stood on so it will always be less ?