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For those architects requested by their clients to prepare estimates of the costs of replacing buildings it is necessary to have sufficient knowledge and experience in the costing of buildings and their components as well as a database of information with enough depth to enable the estimate to be accurately prepared.
Estimating replacement costs
Architects should note that clients often make crucial financial and commercial decisions based on financial information provided by their consultants.
If architects have any doubt regarding their ability to carry out the preparation of estimates they should refer their clients to other suitable professional services provided by cost planners or quantity surveyors.
Because of some confusion of terms as understood by architects, valuers and real estate agents and indemnity insurance brokers, the following information is issued for guidance.
Architects are often requested by their clients to estimate the cost of replacing buildings for insurance purposes. As these estimates do not necessarily reflect the market values of the buildings in the real estate sense, the term 'valuation' is inappropriate and should not be used. An 'Estimate of the current cost of replacement of … (date) …' is a more accurate phrase.
While such estimates are part of normal architectural practice, valuations based on market values should be left to qualified valuers.
Where estimates of the costs of replacement are for insurance purposes these costs should allow for the replacement buildings to comply with current building regulations, Australian Standards and authorities' requirements and should be accompanied by a statement saying this.
Reinstatement and reinstatement with extra cost
Architects should be aware of the difference between 'reinstatement' and 'reinstatement with extra cost'.
Extension of insurance policies is available to cover the 'extra cost' of reinstatement including demolition or dismantling of the insured property necessarily incurred to comply with the requirements in operation at the time of reinstatement of any act of parliament or any by-law or regulation of any municipal or other statutory authority.
Where reinstatement insurance is taken out with 'extra cost', the extra cost cover has to be taken separately, and therefore, an architect estimating the cost of replacement with extra cost must estimate:
- the cost of replacement 'as is'
- the cost of the extra work to comply with current regulations
Architects, when preparing estimates for reinstatement, should advise their clients to consult with an insurance broker to ensure that their requirements are fully covered.
Separate estimates should be made to cover all architects' and consultants' fees.
The date at which the estimate applies should be stated. If the estimate allows for any future increase in costs, this should also be stated, together with the basis used.
The dangers of under-insurance and the need to check and annually update cover should also be pointed out.
Architectural fees for this work are normally charged on a time basis and obviously would vary with the amount of work required. Where the building is one recently carried out by the architect, this time would differ from that required to prepare an estimate for a building where extensive inspections and the preparation of measured drawings are involved. In appropriate cases, photographic records may be desirable.
Valuations in feasibility studies
When architects prepare feasibility study reports which involve taking into account the market values of land or buildings, for example, in order to calculate financial returns the use of the words 'value' or 'valuation' should be clearly defined and the source of this valuation clearly stated and documented.
Frequently, in reports of this nature, these values and valuations will be given by a valuer or a licensed real estate agent for inclusion in the architect's computations, in which case the author and date of these valuations should be positively identified.
Architects should not present themselves as being valuers of land or buildings, or as real estate consultants because these fields are generally beyond the scope of normal architectural services.
Architectural fees for feasibility studies and reports should take into account the time required plus the costs of any consultants' services.
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