Do You Need a Building Valuation for Insurance, and How Often?

Ask a self-managed committee what their building is insured for and most can give you the number. Ask where the number came from and the answers get vague — an insurer's default, a figure carried forward from the last renewal, "whatever it was when we bought the policy." That's the problem a building valuation solves. The sum insured on your policy is the single most important figure your scheme carries, because it's the ceiling on what the insurer will pay after a total loss — and if it's wrong, you find out at the worst possible moment. A professional insurance valuation is how you keep that number honest. This guide sets out what an insurance valuation actually is, why it's not the same as a market or council valuation, how often your state expects one, and what it costs to run on a stale figure.

What an insurance valuation actually measures

An insurance valuation — sometimes called a replacement cost or reinstatement valuation — answers one question: what would it cost to demolish, clear, and rebuild this building as new after a total loss? That is a very different number from three others people confuse it with:

• Market value — what the property would sell for. Includes the land, which you don't insure and never rebuild. Usually lower than reinstatement cost for older buildings, and irrelevant either way.
• Council rateable value — a valuation for rates, based on land and improvements for taxation. Never use it for insurance.
• The last purchase price — what an owner paid for their lot. Bears no relationship to the cost of rebuilding the whole structure.

A proper insurance valuation is built up from construction cost, not sale price, and it has to capture the full cost of a rebuild, not just the bricks and mortar. That means it includes:

• Demolition and debris removal — clearing the site before anything new goes up.
• Professional fees — architects, engineers, surveyors, and the strata's own costs to manage the rebuild.
• Compliance and code upgrades — a rebuild happens to today's building codes, which are almost always stricter (and more expensive) than the ones the building was originally built to.
• Escalation — a total-loss rebuild can take well over a year, and construction prices keep rising during it. The valuation allows for the cost at the time the work is actually done, not today.
• GST — the sum insured needs to be GST-inclusive so the payout actually covers the invoices.

Get any of these wrong and the sum insured is short before the first brick is laid — which is exactly why the figure comes from a valuer who does this for a living, not from a committee's estimate or an insurer's auto-calculated default.

Why it matters

• It's what stands between the scheme and under-insurance. A guessed or stale figure is usually too low, and too low is dangerous — see the average clause below.
• In several states it's a legal requirement, on a set cycle, not an optional planning nicety.
• It's cheap relative to the risk. A valuation for a small scheme costs a few hundred dollars. The gap it prevents can run to hundreds of thousands.
• It shows up in strata searches. A current valuation is a sign of a well-run scheme; a decade-old one is a red flag a buyer's conveyancer will note.

Why under-insurance is the real danger

Committees worry about the policy lapsing. The quieter, more common failure is a policy that's perfectly live but set too low — because most strata policies carry an average (co-insurance) clause.

Here's how it bites. If the sum insured is less than the true reinstatement cost, the insurer treats you as your own co-insurer for the shortfall and reduces every payout in the same proportion — not just total losses. Insure a building that costs $2 million to rebuild for only $1 million, and the insurer considers you 50% under-insured. Make a $200,000 claim for storm damage and they pay roughly $100,000. The scheme is technically insured, the premiums were paid on time, and owners still have to find the other $100,000 themselves.

The average clause is why an accurate sum insured matters even if you never expect a total loss. It's not only catastrophes that get cut down — it's the routine mid-size claim, which is the kind you're actually likely to make. And the only reliable defence against it is a valuation that reflects what the building genuinely costs to rebuild today.

Who should do the valuation

An insurance valuation for a strata scheme should be done by a suitably qualified professional — typically a registered valuer or a quantity surveyor who specialises in reinstatement cost assessment. What you're paying for is someone who:

• knows current local construction rates and how to build up a replacement cost properly;
• allows correctly for demolition, professional fees, code upgrades, escalation and GST;
• produces a written report you can hand to your insurer and keep in the scheme's records.

Some strata insurers offer or arrange valuations, and many brokers can point you to a valuer who works with strata regularly. That's fine — just make sure the output is a genuine reinstatement valuation from a qualified person, not an insurer's online estimating tool dressed up as one.

Full valuation vs desktop update

There are two common products, and the difference matters:

• A full (on-site) valuation — the valuer physically inspects the building, measures it, and assesses construction type and condition. This is the real thing, and it's what you commission periodically.
• A desktop revaluation or indexation — between full valuations, the figure is updated from cost indices without a site visit. It's cheaper and keeps the number from drifting, but it can't catch anything that's physically changed (an extension, a new common-area fit-out, a converted roof space).

The sensible pattern for most schemes is a full valuation on the cycle your state requires, with the figure indexed or desktop-updated at each renewal in between so it never sits still for years at a time.

How often you need one

There is no single national rule — the interval is set by your state's strata legislation, and where the law is silent, by good practice and your insurer's expectations. The widely used baseline is a full valuation every three to five years, with the figure kept current in between. Do one sooner than the cycle when:

• the building has been altered or extended, or had major common-area works;
• construction costs are moving fast (as they have in recent years), so an old figure understates the rebuild badly;
• you're changing insurers and want a defensible sum insured to quote against;
• there's been a claim that revealed the figure was off.

South Australia, Tasmania, the ACT and the Northern Territory each set their own insurance obligations, and the prescribed valuation cycle (where one exists) varies. Confirm the current requirement for your scheme before relying on any single interval — but as a floor, don't let a full valuation sit older than five years.

What to do with the valuation once you have it

The report isn't the end of the job — it only protects the scheme if it feeds through to the policy and the records:

1. Update the sum insured to match. A valuation that says $2.4 million while the policy still reads $1.8 million has done nothing. Tell your insurer or broker and have the sum insured amended at (or before) the next renewal.
2. Index it between valuations. Insurers usually apply an annual escalation factor; sanity-check it each renewal against what building actually costs now rather than trusting it to drift upward on its own.
3. File the report and diarise the next one. Keep the valuation with the scheme's financial records, note the date it was done, and put the next due date in the compliance calendar so it doesn't quietly lapse.
4. Report it to owners at the AGM. The sum insured and the valuation date belong on the record. It's good governance, it's required in some states, and it heads off the "why is our premium so high?" question with a clear answer.

The valuation also does double duty: knowing the genuine cost to rebuild feeds the same asset picture your capital works forecast relies on, so the two are worth reviewing together.

Common mistakes

1. Running on the insurer's default estimate

Many policies auto-populate a sum insured from a generic calculator. It's a starting point, not a valuation, and it won't reflect your building's actual construction, escalation, or code-upgrade cost. Get a real one.

2. Letting the valuation go stale

A figure set five or six years ago, through a period of steep construction inflation, is almost certainly short today. An out-of-date valuation is how a scheme that thinks it's fully insured discovers the average clause at claim time.

3. Insuring to market or rateable value

Sale price and rates valuations include land and bear no relationship to rebuild cost. Insure to reinstatement value, from a reinstatement valuation — nothing else.

4. Forgetting the extras

A rebuild cost is demolition, debris removal, professional fees, code upgrades, escalation and GST — not just the headline construction figure. A valuation that omits them leaves the sum insured short even if the base build number is right.

5. Getting the valuation but never updating the policy

The most avoidable failure of all: commissioning a valuation, filing it, and leaving the policy's sum insured unchanged. The number only protects you once it's on the policy.

Frequently asked questions

Do we legally have to get an insurance valuation?

It depends on your state. NSW explicitly requires one at least every five years. Other states require you to insure to full reinstatement value without always naming a fixed cycle — but the only reliable way to meet that obligation, and to avoid the average clause, is a periodic professional valuation. Treat it as required in practice everywhere.

How much does a strata insurance valuation cost?

For a small scheme, typically a few hundred dollars for a full on-site valuation, and less for a desktop update in between. Set against the size of the sum insured — and the shortfall a stale figure can cause — it's one of the cheapest pieces of risk management the scheme buys.

Can't we just use the figure our insurer suggests?

An insurer's auto-calculated estimate is a convenience, not a valuation, and the risk of it being wrong sits with the scheme, not the insurer. For anything beyond the smallest, simplest building, commission a proper valuation so the sum insured is defensible.

What's the difference between a full valuation and a desktop revaluation?

A full valuation involves a site inspection and measurement; a desktop revaluation updates the existing figure from cost indices without a visit. Use a full valuation on your state's cycle and desktop updates or indexation in the years between.

What happens at claim time if our valuation is out of date?

If the sum insured is below the true reinstatement cost, the average clause reduces your payout in proportion to the under-insurance — on every claim, not just total losses. An out-of-date valuation is the most common reason a scheme ends up self-funding part of a claim it thought was covered.

Quick checklist

• [ ] The sum insured is based on a professional reinstatement valuation, not an insurer's default or a guess
• [ ] The valuation figure is GST-inclusive and allows for demolition, debris removal, professional fees, code upgrades and escalation
• [ ] A full valuation has been done within your state's cycle (at least every five years; sooner if costs are moving or the building has changed)
• [ ] The sum insured on the policy matches the current valuation
• [ ] The figure is indexed or desktop-updated at each renewal in between
• [ ] The valuation report is filed with the scheme's records and the next due date is diarised
• [ ] The sum insured and valuation date are reported to owners at the AGM

Related resources

• Strata Insurance Explained: What Your Scheme Must Cover, and What It Doesn't
• Do You Need a Capital Works Forecast, and How Do You Build One?
• Admin Fund vs Capital Works Fund: What Can You Legally Spend From Each?

This guide is general information for self-managed strata schemes in Australia. It is not legal advice. Valuation intervals, insurance obligations, and the way the average clause applies differ between states and insurers and change over time — always check the strata legislation and regulations that apply to your scheme, read your policy's terms, and seek professional advice where required.