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Insurance Value vs Market Value (By David Patrick)

Insurance Value vs Market Value

By David Patrick


A Homeowner will often mention to Estate Agents that their bank has valued their property at a certain value giving them the opinion that the market would pay that amount for the property. This is often not the case as the bank is referring to the “Estimated New Replacement Cost” (Insurance Value) of the improvements on the property for insurance purposes.

The “Open Market Value” is the amount a willing, informed and able Purchaser will pay a willing, informed and able Seller for a property, on the date of valuation, in an open market situation. This value often falls short of the insurance value.


An example of this would be very old Victorian era home close to the CBD of a City where the cost to build the house far exceeds what a willing and able buyer would pay for that property. The house may be very dilapidated and there may be illegal occupants living on the property. The potential Purchaser may not be certain that the Seller would be able to provide him with vacant occupation when the property transfer is registered in his name. He would also have to spend a large sum of money to renovate the building. His offer to the Seller would take these factors into account.

For example, if the buildings measured 250 square metres in extent, the cost to rebuild would be in the region of R8500 per square metre equating to over R2,000,000 which would be the “Insurance Value” yet the “Open Market Value” may be less than R1,000,000.

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