Insurance sounds boring until the day a building actually burns down or floods, and then it is the only thing that matters. Victorian law says an owners corporation must insure a building for its full replacement value, not what it would sell for on the open market. Getting that number wrong can leave owners paying out of pocket after a total loss. OC building insurance valuations by SOCM exist to fix exactly that problem, using qualified valuers instead of guesswork. This article covers what a valuation checks, how often the law demands one, and why skipping it is a costly mistake.
Why Does Replacement Value Matter More Than Market Value?
Market value is what a buyer would pay for the property today. Replacement value is what it costs to rebuild the exact same building from nothing, including labour, materials and professional fees. These two numbers are rarely close. A block built decades ago on cheap land might sell for a modest amount but cost millions to rebuild under today’s construction rules and prices, especially after the sharp rise in Melbourne building costs over recent years.
How Often Does the Law Require a Valuation?
Victorian owners corporations with three lots or more must get an independent valuation at least every five years under the Owners Corporations Act 2006. This rule tightened from 1 December 2021, when the old system only applied to certain larger, so called prescribed owners corporations. Now almost every scheme, aside from very small two lot subdivisions, falls under this five year cycle. Industry bodies actually recommend a full valuation every three years, since construction costs rarely stay flat for five.
What a Proper Valuation Actually Checks
| Cost Included | Why It Matters |
| Demolition and debris removal | Rebuilding starts with clearing the site first |
| Architect and engineer fees | Required before any legal rebuild can start |
| Council compliance costs | Buildings must meet today’s building codes |
| Temporary accommodation | Owners need somewhere to live during the rebuild |
What Happens If a Building Is Underinsured?
Underinsurance means the payout after a disaster falls short of what rebuilding actually costs. That gap gets split among all the owners, sometimes running into hundreds of thousands of dollars each. Insurance itself usually eats up 10 to 20 percent of a strata scheme’s yearly budget, so getting the sum insured wrong wastes money either way, whether through overpaying now or a painful shortfall later.
Signs a Building Might Be Underinsured
- The last valuation is more than five years old
- Recent renovations were never reported to the insurer
- The sum insured has barely moved despite rising build costs
- Nobody on the committee can explain how the current figure was set
A valuation costs a few thousand dollars at most. A serious shortfall after a fire or flood costs a great deal more, and every owner in the building ends up sharing that bill.
Who Should Actually Do the Valuation?
A qualified quantity surveyor or a specialist strata valuer should carry out the assessment, not a real estate agent guessing off recent sale prices. These professionals walk the whole building, note construction materials, lift systems, fire services and finishes, then price a full rebuild from the ground up. Instructions given to the valuer matter too, since a vague brief can leave gaps in what actually gets covered when a claim is lodged.
What If the Committee Refuses to Get One Done?
Some committees put off a valuation to save money in the short term, which almost always backfires later. Owners can raise the issue at a general meeting and push for a resolution, since the cost of the valuation is trivial next to the potential losses from an underinsured claim. Getting the number right once, then reviewing it on schedule, protects every single owner in the scheme equally.
