February 7, 2024 - Industry News

What is the difference between the value used for Condominiums Insurance and Market Value?

To begin, Part V Section 65 of The Condominium Property Act states the following:
2) The corporation shall obtain and maintain insurance on its own behalf and on behalf of the owners with respect to the units, other than improvements that are made or acquired by owners with respect to units, the common property, the common facilities and services units:
    (a) against major perils in an amount equal to the replacement cost of the insured property; and
    (b) against any other perils that are specified in the bylaws of the corporation or directed by the board.

So, what is the difference between Replacement Cost and Market Value?
Market value is the estimated price at which your property would be sold on the open market between a willing buyer and a willing seller with neither acting under duress or with compulsion to buy or sell.  Replacement cost is the cost of reproducing a new replica of a property based on current prices with the same or closely similar materials, as of a specific date.

The key difference is that Market Value considers market conditions and market supply and demand for an asset. Replacement Cost is the cost associated with reconstruction of property and investigates construction material costs and labour rates that drive project costs. Replacement costs also do not include land value as in the event of a loss, as you would retain your land base.

When placing your insurance, ensure you are not confused about the above two items - it is critical Condominium Corporations carry insurance that is adequate for the replacement of their property.  If you have additional questions on these items, contact your insurance broker or your appraiser who should be able to assist you.