Why do the different values differ so sharply?

  • The market value is really the price at which a willing buyer and a willing seller meet and agree on for an effective sale.
  • The bank’s value or mortgage value is usually a conservative view on anticipated market value, traditionally benchmarked at approximately 20% of market value in the residential environment.
  • The Municipal value is the value that the municipal valuer has attached to a ratepayers property usually based on the estimated market value at a given point in time.
  • The Replacement Value is usually the total cost to reinstate the buildings to their original state after total destruction – this value includes the common property, professional fees, value added tax, demolition cost and accounts for escalations. It normally excludes the value of the land, location, views and other factors which would affect the market value. 
Thus the market value of the same building structure on Property A in Larneyville with panoramic views, sought after area etc will differ sharply in market value with the same structure on Property B in Scummyvale with high crime, no schools, poor infrastructure, out of town. Assuming the location of both have no impact on construction costs ie equal access to resources, the replacement cost may be identical. In a soft market, I have seen units sell for less than replacement value however replacement value is usually lower than market value. Usually, sums insured are increased.