If you’re familiar with the basics of the NSW Reconstruction Authority’s Home Buyback Program but want to better understand how it works in practice, this post is for you. Let’s break it down using an example and explain some of the trickier parts, like the “top-up amount”, “section 55 compensation”, and how insurance payouts can affect your final offer.
Imagine you own a home in the Central West or Northern Rivers region that was badly damaged in the 2022 floods. Here’s how the numbers might look:
- Family home’s pre-flood market value: $500,000
- Current market value (post-flood): $47,000
- Compensation under Section 55*: $100,000
- Top up Amount*: $0.00
- Insurance payout received*: $498,037
Understanding Section 55 Compensation
Section 55 of the Land Acquisition (Just Terms Compensation) Act 1991 (NSW) aims to compensate you for more than just the market value of your property. It covers things like the special value of your home to you (sentimental value), costs related to relocation or disturbance or any disadvantage you might face from having to move.
In this case, the Section 55 compensation is $100,000, which is added to the current market value to make up the final offer.
Understanding the Top-Up Amount
The top-up amount is designed to bridge the gap between your family home’s pre-flood value and its current value, minus any Section 55 compensation. Here’s how it’s calculated:
– Pre-flood value ($500,000) – Current value ($47,000) – Section 55 compensation ($100,000) = $353,000
However, if your insurance payout ($498,037) is higher than this top-up amount ($353,000), the top-up amount is reduced to $0. This means the insurance payout effectively covers the gap.
Calculating what forms part of the Insurance Payout
Insurance payouts can include costs for things like demolition of existing structures, clean-up, building inspections, mould removal, or asbestos removal. These costs are not directly tied to the market value of your property, so it is worth negotiating with RA to exclude them from the payout amount used to calculate your buyback offer.
For example, if your $498,037 insurance payout includes $200,000 for demolition and clean-up, you could argue that these costs shouldn’t reduce your buyback amount. This could help you secure a higher final offer from the RA. We are yet to receive feedback from RA in relation to the exclusion of these costs.
Calculating the Final Buyback Offer
In the above example, if there is no reduction in the insurance payment, the final offer from the RA will therefore be based on two things:
- The current market value of your property; and
- The Section 55 compensation for additional costs like relocation or disturbance.
Current value ($47,000) + Section 55 compensation ($100,000) = $147,000
This $147,000 is the total amount you might expect to receive from the buyback scheme.
If you or someone you know might be eligible for the program, it is a good idea to seek legal advice to make sure you’re getting the best possible outcome. In the event RA proceeds with the buy-back to purchase the home, you can also seek payment for your legal fees of the conveyance, up to a set amount.
For more details contact us at Cheney Suthers.