Don’t be Under-Insured!

Guest author, Omar Khan, Business Development Associate with Normac explains…

When people ask Normac why they need an insurance appraisal done every year or why they need one at all, the number one thing we tell them is that a current appraisal ensures that they have enough insurance coverage in case of a loss.

Since COVID began, this has become even more pronounced with large swings in the raw material world, which directly affects your condo corporation’s replacement cost and insurance. Ensuring that properties are appraised, at correct, up-to-date valuations, including current costing, is more paramount than ever.

Do not gamble with the most significant asset in your life – your home.

What is an Insurance Appraisal? 

An insurance appraisal estimates the total replacement cost for a property. This is the amount needed to cover all expenses to rebuild a property, including building code, bylaw updates, and demolition. In Alberta, condominium properties must be insured to full replacement cost.

Changes in the construction market directly affect your property’s replacement valuation. With rapidly changing construction costs, these cost changes must be accurately captured into your appraisal to ensure the corporation is paying the correct premiums and mitigating risk.

Construction & Material Cost Increases

Normac’s research shows that all regions of Canada faced residential construction cost increases outpacing recent years or standard inflation. Statistics Canada Construction Price Index (December 2021) indicates that construction costs for residential properties have increased by 21.7%, surpassing previous highs.

Furthermore, Statistics Canada reported that the Industrial price index and raw materials price index grew on a year-over-year basis by 16.1% and 29%, respectively.

Closer to home, Calgary and Edmonton faced some of the most significant national residential construction cost increases, with Calgary leading the country overall.

Lumber:  Poor weather, an unexpected increase in demand, and higher shipping costs have all contributed to a significant jump in lumber costs, with softwood lumber prices sitting 76% higher than pre-pandemic levels (October 2019).

Concrete:  Concrete and its associated components, including reinforced steel, have increased in cost. High-rise apartments have taken the brunt of this increase, from concrete frame apartments to apartments with sizeable underground parking structures.

Plastic Resin:  Manufacturing capacity issues, raw material shortages, and increased shipping costs have resulted in increased costs.  Plastic resin is used in various building construction materials, from electrical wire to engineered wood and PVC piping.

Raw Steel:  Prices have gone up due to supply constraints, including more protracted and more expensive delivery and shorter price guarantees.

Window Frames:  The pandemic resulted in labour manufacturing constrictions and a significant shut down of foreign supply lines which support the raw materials needed to build windows. The local Calgary window industry has reported significant cost increases, erratic shipment arrivals and extreme delays/lead times.

Other common building materials such as insulation, drywall, and roofing products are all experiencing landing delays.

Costing Experts

It is more imperative than ever that your appraiser of choice is a construction cost expert. They should monitor local construction costs and update their database regularly. Additionally, while the current market reflects price growth and increasing replacement costs, having an appraiser with a pulse on construction costs will mean that as tides change and costs decrease, you will want to see this change reflected quickly on your appraisal report.

The goal of all condo corporations is to reduce the risk that the corporation bears and to be insured to the total replacement cost, whether it is factoring in the increasing costs of materials or ensuring they are not over-insured.

About the Author:  Omar Khan is a business development associate with Normac, and has worked on costing and appraisals for over 5 years, working heavily with property managers, insurance brokers, owners of properties as well as condo boards in that time. 


Visit normac.caNormac is Canada’s leading Insurance Appraisal firm, and has been doing insurance appraisals for over 20 years, with 80,000+ appraisal reports completed in over 120 cities across Canada. 

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