How is a house valued for compensation?

By what it costs to build the same house again today — materials, labour, fittings, and the fees involved — with no deduction for how old it is. That is deliberately different from what a valuer would say the house is worth on the open market, and the difference is usually substantial for an older structure.

Why depreciation is not deducted

Market valuation reduces a building's value for age and wear. Replacement cost does not, because the purpose is to put you in a position to have the same shelter again — and a builder charges the same to build a house whether the one it replaces was new or thirty years old.[1]

Deducting depreciation from a structure is the most common single error in compensation assessment, and it is worth checking for by name: ask whether any depreciation, betterment or age adjustment was applied to your award.[2]

What should be in the assessment

• External dimensions and number of rooms, measured rather than estimated.
• Wall, roof and floor materials, and foundation type — a fired-brick wall and a mud-and-wattle wall are different rates.
• Number of storeys and the condition recorded.
• Ancillary structures: latrine, kitchen, store, animal shelter, fence, gate, paving, water tank, well. These are routinely omitted because the enumerator was looking at the main house, and together they can be a large share of the total.
• Fittings and installations — doors, windows, electrical connection, plumbing.
• The fees and costs of obtaining the replacement, which form part of replacement cost.[3]

Checking your figure

1. Ask for the breakdown, showing the rate per square metre by construction type and the quantities used.
2. Check the measurements yourself. Wrong dimensions are more common than wrong rates.
3. Test the rate. Ask a local builder what they would charge to build the same structure today. If the award will not cover it, it is not replacement cost.
4. Check for the ancillaries line by line.
5. Check the date of assessment. Building material prices rise fast where a large project is under construction nearby, and a two-year-old rate will not buy today's materials.

Salvage

Because compensation is calculated on building new, you can normally take the materials from the old structure — iron sheets, timber, doors, fittings. Confirm that in writing before possession, since after demolition the question is moot.[4]

If a house is replaced rather than paid for

Where the project builds you a replacement, the test is whether it is at least equivalent to what you had, with secure tenure and access to services — and whether you can afford to live in it, since a serviced plot with a metered connection introduces monthly costs a subsistence household did not have before.