Buildings Insurance

I am trying to establish what my household buildings insurance should be. The house is a small, three-bedroom, end of terrace. It was built in the mid-1980s and is just under 1,000 square feet in area.

I have made some enquiries and have been quoted anything from £57.15 to £71 (€72.57 to €90.15) per square foot in rebuilding costs. This would imply that the house should be insured for between £57,150 and £71,000, depending on which company you happen to go with. Do these figures accurately reflect the true cost a builder would charge to rebuild a modest two-storey house as described above on a serviced site?

Mr N.H., Dublin

Your question raises a number of interesting points in relation to the reinstatement costs on residential buildings, actual building costs and property valuations. The simplest answer is that there is no straightforward way of gauging the rebuilding costs involved in reinstating your home in a worst case scenario. The number of variables is too high.

The only guide figure available is in a series produced annually by the Society of Chartered Surveyors. The most recent figures available are those for the year up to January 1998 and, while rebuilding costs are not directly related to house prices, the rising cost of building in the past 12 months make those figures totally out of date. The figures for the year up to this month are due out at the end of February and they should give a better picture of what is happening in rebuilding costs.

For what it is worth, the lowest of last year's figures - the figures per square foot vary according to house type - was £67.25 per square foot for a detached four-bedroom bungalow. That would put the lower figure you say you have been quoted very much in the shade. Prices a year ago for a semidetached three-bedroom house - about as close as you are going to get to an end-terrace in the categorisation used - was £71 per square foot. That is at the very upper end of the figures you quote and, given the fact that these figures are forecast to rise substantially when they are published in February, it appears that that £71 per square foot figure is below the lowest you should consider when insuring the buildings.

It is certainly true that insurance companies will offer a wide range of suggested rebuilding costs per square foot. Geographically, these tend to be broken down into Dublin, Cork, Galway and Other. Thereafter, they are broken down by house type.

I have to say that in checking the situation for you, I did come across companies recommending even less per square foot than your lowest quotation, but only for houses outside the three cities mentioned and I gather from your letter that you are talking about a Dublin property.

Another point to consider when weighing up the accuracy of this or any guide is what exactly it covers. The Society of Chartered Surveyors' data measures the "detailed bill of quantities" in arriving at its estimates. To put it at its simplest, it assesses how many bricks, windows and doors, how much mortar, wood and plaster are required to build a particular type of house. It then prices these items at the most recent cost available and divides by the square footage to give the guide figure, obviously including a factor for labour costs.

What this does not take into account, however, is your solid oak kitchen, your conservatory, garage or any such extra that may exist in the property. It is essentially a guide price for a basic property in its class. Anything which would raise the specifications - even something as common these days as an alarm or double glazing - would have to be taken into account on top of that basic guide price. Even boundary walls fall outside the parameters of the basic guide figure. Prices also vary around the State.

While there is the objective assessment of how much the materials for any given residence might cost, there is also the far more subjective figure in relation to the cost that might be charged by a builder. In a climate such as the present, it is practically impossible to get a contractor to carry out work on a small - i.e. single dwelling - job and, with demand for their services so high, the rates they charge might well be higher than they would be in a more recessionary environment in the building trade.

It is not simply that they are pitching their rates higher than they might otherwise; it is a matter of pragmatism. With so much work available on large scale developments, with their consequent economies of scale in time and effort, it is just not worth some contractors' while to take on jobs which, although they might seem major to you, are very minor by their current standards. As a result, some quite simply will not quote for smaller business and others quote ludicrously high figures, not to rip customers off but to deter them.

In such an environment, it is phenomenally difficult to gauge accurately how objective reinstatement costs will match with the more subjective but real building costs.

From the point of view of insurance, what is important is that you have adequate cover to meet the bills should the worst happen. If you are paying £65 a square foot and the eventual valuation from the insurance assessor comes to £73 a square foot, you will be the loser. The price of insuring the buildings themselves vary obviously from company to company, but when the overall difference is worth so much to you should you need to claim, you would do well to be generous in your assessment of the cost or get the insurance company to value it for you. After all, houses are individual despite the awful sameness that appears to pervade the market today and there is not an insurance "list price" beyond which insurers are most unlikely to pay in the same way as there is for automobiles.

The actual premium rates for buildings insurance are levied at between £1.50 and £1.60 per £1,000 rebuilding cost. Taking your uppermost quotation of £71 per square foot and a floor area of 1,000 square feet, that would give you a rebuilding cost of £71,000 - £71 X 1,000. Taking the mid-point in insurance premium rates - £1.55 per £1,000 rebuilding cost - that would give you an annual insurance premium of £110.05 - 71 X £1.55. The difference between the upper and lower extremes quoted by you amounts to a difference of £20 a year in buildings insurance premiums. For that minimal difference, I'd opt for safety.

Please send your queries to; Dominic Coyle; Q&A, The Irish Times, Fleet St, Dublin 2 or e-mail to dcoyle@irish-times.ie.