Why is real estate valuation an important step in insurance? In fact, real estate valuation is an important procedure not only for buying and selling, but also for real estate financing, investment, development, mergers and acquisitions, and more.
It is not only a basis that can help you in all your investment decisions, but it is also an important tool in determining the appropriate insurance amount and ensuring full compensation in the event of any damage. In this article, we will talk about real estate valuation for insurance purposes and how to achieve it.
What is real estate insurance?
It is a contractual agreement between the property owner and the insurance company that aims to provide financial protection against potential losses that may be incurred by the building, its contents, or third parties as a result of various incidents, such as fire, vandalism, theft, natural disasters, or civil liability. Through this agreement, the owner can cover the costs of repair, reconstruction, or compensation for damages, ensuring the continuity and financial stability of the real estate investment.
The importance of real estate insurance in the Kingdom has become particularly apparent with urban expansion and increased reliance on real estate financing, as insurance has in many cases become a basic requirement of banks and financing institutions before completing financing procedures. Insurance also provides peace of mind for investors and owners and reduces the financial risks associated with serious accidents or temporary cessation of use of the property.
What is real estate valuation for insurance purposes?
Real estate valuation for insurance purposes is the process of estimating the cost of restoring a building to its previous condition in the event of damage or loss, whether partial or total, with the same specifications or equivalent. Real estate valuation for insurance purposes is used to determine the insurance value on which the insurance policy and the appropriate coverage amount are based, making it one of the conditions of insurance.
Its is carried out in the same steps as real estate valuation by a real estate valuer accredited by the Saudi Authority for Accredited Valuers. The real estate valuer collects all information about the property, such as area, finishes, services, facilities, and other factors, in addition to taking into account all the necessary reconstruction requirements and laws, in order to determine the value of the insurance coverage necessary to compensate the insured for the loss, because:
- Overvaluation: Leads to paying higher insurance premiums than necessary without achieving any real benefit for the insured.
- Underestimation: leads to insufficient insurance coverage in the event of a loss, which may expose the owner to significant financial risks when claiming compensation.
Thus, real estate valuation for insurance purposes ensures fair and balanced protection for both the insurer and the insured, and increases the reliability and efficiency of the insurance policy in the face of risks.
What are the steps involved in real estate valuation for insurance purposes?
Real estate valuation for insurance purposes is based on the cost of restoration to its previous condition and is used to determine the insurance value on which the insurance policy is based and the appropriate amount of coverage. This is done by:
1.Determining the basis of the valuation:
At the beginning of the real estate valuation process, the real estate valuer must know the purpose of the valuation. In insurance, the basis of the valuation is to estimate the cost of restoring the building to its original specifications. In some insurance policies, the actual cash value or other rules may be used to determine the appropriate insurance value.
2.Inspection and data collection:
The valuer inspects the building to determine its condition and measure its areas, and reviews plans and drawings to verify the accuracy of the information. The age of the building, building materials, and electrical systems, such as heating, ventilation, air conditioning, elevators, and security systems, are determined, and environmental and social factors are also taken into account.
3.Estimating the cost of reconstruction:
After collecting the data, the cost of rebuilding the entire building is calculated, starting with the foundations, structure, walls, and ceilings, through to the interior finishes, electrical and mechanical systems, kitchens, and elevators, as well as water, drainage, and communications networks.
4.Calculating additional costs:
This includes professional fees such as engineers, architects, and surveyors, demolition and site clearance costs, and preparing the land for new construction, taking into account the presence of hazardous materials. An emergency fund is also allocated to cover any changes in the prices of building materials and contractor services.
5.Review legal and planning restrictions:
The assessor ensures compliance with local regulations, such as the Saudi Building Code, Green Code, heritage building requirements, protected areas, height restrictions, and zoning, to ensure that reconstruction can proceed without issues.
6.Prepare an insurance value report:
Finally, a report is prepared explaining the methods used and specifying the final value of the insurance coverage. The report also clarifies any exceptions or non-refundable items to ensure that the valuation is clear and consistent with the insurance policy.
From the above, we conclude that real estate valuation for insurance purposes is an important step to ensure the accurate determination of the value of insurance coverage and to protect the rights of the property owner when insuring the home from insufficient compensation in the event of any losses. It also helps reduce risks for insurance companies and ensures fair coverage for the property, increasing confidence in the market, which in turn increases trust between customers and insurance companies.
In conclusion
Real estate valuation is an important tool for every owner or investor seeking to protect their investment. Through valuation, the true value of the property can be determined, which helps in selling and buying at a fair price, resolving disputes between heirs, making sound investment decisions, and also ensuring that the home insurance amount covers damages fairly and completely, among other transactions that require an accredited real estate valuation report.
To ensure that you obtain an accurate real estate valuation, you must hire a property valuer accredited by the Saudi Authority for Accredited Valuers, who has sufficient experience in various real estate valuation cases. Aain is one of the accredited real estate valuation companies in Saudi Arabia, and we have a wide range of accredited real estate valuers to help you make your decisions with confidence. Contact us now to secure your rights and invest with confidence with our real estate valuation services.
Frequently asked questions:
- How do I get a real estate valuation?
To obtain an valuation, you must hire an accredited real estate valuer. You can now contact Aain for valuation, one of the most important real estate valuation companies in Saudi Arabia, as it has the necessary accreditations from the Saudi Authority for accredited Valuers, the Ministry of Commerce, and the Royal Institute of Chartered Surveyors. With extensive experience working with many clients, you can now request a quote form on our official website, and our team will contact you as soon as possible.
- How is real estate valuation done?
Real estate valuation is done by thoroughly studying the property to figure out its market value. The valuer collects info about the property, like its location, size, age, materials used, and condition of the finishes. The valuer then analyzes this data and applies appropriate valuation methods such as cost, market comparison, or expected income depending on the purpose of the valuation. The real estate valuer then submits a report clarifying the market value of the property.
- What are the types of valuation?
The Saudi Authority for Accredited real estate Valuers has several Sectors of valuation, including: real estate valuation to determine the value of land and buildings, Business valuation to estimate the value of companies and projects, valuation of machinery, equipment, and movable property to determine the value of industrial or commercial equipment, vehicle damage valuation to estimate the loss of cars after accidents, and also the valuation of precious metals and gemstones to determine their market value.