Insurance Appraisal

Scope of Work for an Insurance Appraisal:

• The scope of work for an insurance appraisal is to value the improvements and site improvements of the subject property without the underlying land value and develop an opinion of the insurable value of the structure. As the assignment calls for the replacement value of the improvements and site improvements, no Sales Comparison or Income Approach is necessary and no development of highest and best use is necessary for this kind of assignment.

• Because the subject property is located in a flood zone, the scope of work requires two (or: only one) value(s) for determination of the appropriate coverage for the (flood and) hazard/wind insurance. The 3 D’s:

Most often appraisers include in their scope of work the three D’s: As-Built Value vs. Code Upgrade Value

“As-Built” Value: The replacement value (RCV) an appraiser is asked to determine for the insurance policy, is the “as-built” or ”as-is” value. The scope of work is to appraise the building without consideration of deterioration and code upgrades.

Code Upgrades: Structures built before the last building code change are considered not up to code. The estimated replacement value might not be sufficient to rebuilt the structure under current building codes. To insure the difference between the ”as-built” replacement value (RCV) and the RCV “up-to-code”, might require a separate insurance rider called Ordinance of Law.

Value “Up-to-Code”: The replacement value of a structure under consideration of current building codes. For example: A 1990 structure w/o impact openings, built with an 8-foot elevation will need to be rebuilt with a 10-foot elevation and with impact resistant openings. As-Built Value vs. Code Upgrade Value

Items to consider for code upgrade valuation:

• Classification of the building to evaluate the need for sprinklers • Impact resistant openings • Green building requirements (local codes) • Code upgrades for plumbing, electric, HVAC • Flood map changes (increased BFE) • Flood ordinances changes (increased BFE or freeboard)

When the appraiser is asked to deliver a value with code upgrades, the scope of work is as follows:

• RCV “As-Built” • RCV “Up-to-Code” • Deduct RCV As-Built from RCV Up-to-Code to arrive at Ordinance of Law

ISO Classifications

• ISO 1 – Wood Frame • ISO 2 – Joisted Masonry • ISO 3 – Combustible • ISO 4 – Masonry Non Combustible • ISO 5 – Modified Fire Resistive • ISO 6 – Fire Resistive

• Please refer to the separate hand-outs.

The wind valuation is a repetition of the flood valuation without the foundation and 10-15% of electric and plumbing within the foundation.

Several more boathouses are included in this valuation and they all contain solar panels.

The entire solar installation will be included in the site improvement section.

Liability Issues for Appraisers:

Biggest mistakes in insurance appraisals:

- Wrong dimension calculation - Mistakes in the valuation - Misinterpretation of ISO classes - Deduction for depreciation - Etc.

Being underinsured can result in co-Insurance penalties for the property owner, who will subrogate his/her losses to the appraiser: Calculation of Co-Insurance Penalties:

Building Value at the time of the loss: $250,000 Limit of insurance at the time of the loss: $100,000 Co-Insurance Election: 80% Amount of Loss: $40,000 Policy Deductible: $500

Step 1: Determine the amount to comply with co-insurance $250,000 x 0.80 = $200,000 (Minimum amount needed to comply with co-insurance requirements

Step 2: Calculate the percentage by which the final loss settlement will be reduced: $100,000 / $200,000 = 0.5

Step 3: Calculate the payable loss amount: $40,000 x 0.50 = $20,000

Step 4: Subtract the policy’s deductible to determine the loss settlement: $20,000 - $500 = $19,500

Step 5: Property owner will sue appraiser for $20,000 Thank you for attending this seminar. Call, text or email with questions anytime.