Real Estate Appraisal Forum

appraisersforum.com logo
The Premiere Online Community for Real Estate Appraisers!
 Fastest Way to Find a Real Estate Appraiser Enter Zip Code:
 
 
Go Back   Appraisers Forum > Real Estate Appraisal Forums > Commercial/Industrial Appraisals
Register Help Our Rules Calendar Archives Mark Forums Read


Closed Thread
 
Thread Tools
  #1  
Old 04-13-2011, 09:16 PM
PS111222333444 PS111222333444 is offline
 
Join Date: Sep 2010
State: Washington
Professional Status: Certified General Appraiser
Posts: 30
Default Insurable Value Defined

One of our bank clients is now requiring “Insurable Value” for each building within an appraisal. The Dictionary states that this value is often considered to be replacement (or reproduction cost) plus allowances for debris removal or demo, less deterioration and noninsurable (land?) items. I queried an insurance broker who said their data comes from MSB and is based upon replacement cost new with no factored depreciation. I found conflicting info on AI site and other threads. So, does anyone have a handle on Insurable Value. What else is or is not factored? Landscape/Hardscape, water/sewer lines, conduits, site lighting, etc?

I'm also somewhat nervous that the client is placing the determination of an insurance product on the appraisal and opening another avenue for liability. Should there be language limiting the use of this value, as in, it's only good for the effective date?

Thanks for the input.

Thanks for any input.
Sponsored Links

  #2  
Old 04-13-2011, 09:32 PM
Denis DeSaix Denis DeSaix is offline
 
Join Date: May 2005
Location: Northern California
State: California
Professional Status: Certified General Appraiser
Posts: 14,564
Default

I've always considered the insurable value to be the replacement cost of the improvement. No EI/EP, just the replacement cost (which includes contractor profit).

The lack of a standard definition allows the appraiser to define it. Confirm with the client that they want the cost to replace the improvement; if so, then use that to define what "insurable value" means.

Just use a recognized source to estimate the costs (that source could be local contractors... I'd document who they are if that's who I used).
  #3  
Old 04-13-2011, 09:34 PM
Marion Rhodes's Avatar
Marion Rhodes Marion Rhodes is offline
 
Join Date: Feb 2006
Location: Poconos
State: Pennsylvania
Professional Status: Certified General Appraiser
Posts: 11,270
Default

I'm not trying to be funny, but,

You are mandated to follow USPAP. If you don't have compentency with the value they are asking you to appraise, by USPAP you have to turn down the job.

Do not take liabilities your pocket cannot pay for later. Some work is not worth having.

.
  #4  
Old 04-13-2011, 09:36 PM
Marion Rhodes's Avatar
Marion Rhodes Marion Rhodes is offline
 
Join Date: Feb 2006
Location: Poconos
State: Pennsylvania
Professional Status: Certified General Appraiser
Posts: 11,270
Default

Quote:
The lack of a standard definition allows the appraiser to define it.
Really? I believe USPAP says you must provide the definition and cite the definition. I don't believe that a made up definition is credible for a citation.
  #5  
Old 04-13-2011, 09:42 PM
Denis DeSaix Denis DeSaix is offline
 
Join Date: May 2005
Location: Northern California
State: California
Professional Status: Certified General Appraiser
Posts: 14,564
Default

Quote:
Originally Posted by Marion Rhodes View Post
Really? I believe USPAP says you must provide the definition and cite the definition. I don't believe that a made up definition is credible for a citation.
Marion-

The client asks for insurable value.
I ask the client, "what exactly do you mean by insurable value?"
The client states, "I need to know how much I should have the improvements insured for if I need to replace them. So, I need an estimate of the replacement cost."
I ask, "Ok, so by 'insurable value' you mean you want to know the replacement cost to make sure your insurance coverage is sufficient to replace the improvement?"
The client states, "yes".
I say, "I can do that!"

In my report I then state that the client requested my opinion of Insurable Value. I define the insurable value as the replacement cost for the subject, for the client to use in its insurance decision-making process. I then provide the that value opinion.

That's a "made up definition" that isn't "credible"?
  #6  
Old 04-13-2011, 09:47 PM
Marion Rhodes's Avatar
Marion Rhodes Marion Rhodes is offline
 
Join Date: Feb 2006
Location: Poconos
State: Pennsylvania
Professional Status: Certified General Appraiser
Posts: 11,270
Default

Quote:
The Dictionary states that this value is often considered to be replacement (or reproduction cost) plus allowances for debris removal or demo, less deterioration and noninsurable (land?) items.
The OP is including more than the replacement cost you find in Marshall & Swift or any of the other databases.

And while you are contemplating it, decide if that includes the foundation, or not, and the total build out, or the standard build out, not to mention damage to driveway and outbuildings.

.
  #7  
Old 04-13-2011, 09:47 PM
Michigan CG's Avatar
Michigan CG Michigan CG is offline
 
Join Date: Nov 2006
State: Michigan
Professional Status: Certified General Appraiser
Posts: 17,263
Default

According to the Dictionary of Real Estate Appraisal, Fourth Edition Insurable Value is:

Quote:
The value of an asset or asset group that is covered by an insurance policy; can be estimated by deducting costs of noninsurable items (e.g., land value) from market value.

Value used by insurance companies as the basis for insurance. Often considered to be the replacement or reproduction cost plus allowances for debris removal or demolition and noninsurable items. Sometimes cash value or market value, but often entirely a cost concept. (Marshall & Swift LP)
Now note that the definition according to the institute is REPRODUCTION cost. In typical appraisal Cost Approaches we use a REPLACEMENT VALUE.

There are significant differences in many properties when considering replacement vs. reproduction.

Now run a Marshall & Swift Cost Approach on your own home and then go to your policy coverage and see what they have as replacement cost and you will see a significant difference in those two numbers with the insurance agent being significantly higher.

It is my opinion you can provide this value, with about two pages of disclaimer. I would however charge a significant additional fee to this type of request considering the liability you will incur by opining this value.

Welcome to your $1,000 basic URAR assignment.
__________________
You do not know what you do not know.
  #8  
Old 04-13-2011, 09:59 PM
Marion Rhodes's Avatar
Marion Rhodes Marion Rhodes is offline
 
Join Date: Feb 2006
Location: Poconos
State: Pennsylvania
Professional Status: Certified General Appraiser
Posts: 11,270
Default

Thank you Michigan CG.
Quote:
The value of an asset or asset group that is covered by an insurance policy
This part is the qualifier, whether the landscape and/or personal property is included. This is the domain of INSURANCE APPRAISERS. Just like cars are for AUTO APPRAISERS. Best bet,
Get an insurance company to go with you and give you a free quote.

Use their quote for the insurable value.

.
  #9  
Old 04-13-2011, 10:00 PM
Denis DeSaix Denis DeSaix is offline
 
Join Date: May 2005
Location: Northern California
State: California
Professional Status: Certified General Appraiser
Posts: 14,564
Default

Quote:
Originally Posted by Marion Rhodes View Post
Really? I believe USPAP says you must provide the definition and cite the definition. I don't believe that a made up definition is credible for a citation.
Here's what the relevant part of FAQ #132 says:

Quote:
USPAP does not provide any specific definition of value or endorse any particular source; it merely defines the general components required to establish a market value definition. Sources of value definitions could include, for example, a regulatory agency, a legal jurisdiction, an engagement letter, or a textbook.
So, the focus of USPAP is to make sure that the definition of value that is opined is understood and disclosed in the report.
An engagement letter between the client and appraiser can be used for the "source" of the definition.

So, yes, the appraiser and client can agree to what the definition of value is to be for the assignment (or parts of the assignment). Note that the appraiser isn't "making it up". The appraiser is working with the client to come to a mutually understandable definition that is meaningful to the client for the intended use.
Defining the value with the client and then stating the definition of that value in the report is USPAP compliant.
  #10  
Old 04-13-2011, 10:04 PM
PL1957 PL1957 is offline
 
Join Date: Jul 2004
State: Illinois
Professional Status: Certified General Appraiser
Posts: 2,523
Default

Quote:
Originally Posted by Marion Rhodes View Post
Thank you Michigan CG.

This part is the qualifier, whether the landscape and/or personal property is included. This is the domain of INSURANCE APPRAISERS. Just like cars are for AUTO APPRAISERS. Best bet,
Get an insurance company to go with you and give you a free quote.

Use their quote for the insurable value.

.
We provide insurable values all the time as part of our standard report. Marshall's has a section that lays out pretty clearly what should be excluded when estimating insurable value. It's not a big deal.
Sponsored Links

Closed Thread


Thread Tools

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

vB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Forum Jump




Copyright © 2000-, AppraisersForum.com, All Rights Reserved
     Terms of Use  Privacy Policy
AppraisersForum.com is proudly hosted by the folks at AppraiserSites.com

Fastest Way to Find a Real Estate Appraiser Enter Zip Code:
Partner Sites:
AppraiserUSA.com - National Appraiser Directory AllDomainsUSA.com - Domain Name Registration
DeadbeatListings.com - Deadbeat ListingsAppraiserSites.com - Web Hosting for the Professional Real Estate Appraiser
Find FHA Appraisers - FHA Appraiser Search Commercial Appraisers - Commercial Appraiser Search
Relocation Appraisal - Find Relocation Appraisers Domain Reseller - Business Opportunity
Home Security Buzz - Home Security Info Radon Testing - Radon Gas Info
My Medicare Forum - Medicare Info Stop Smoking Help - Help Quitting Smoking
CordlessPhoneStore.com - Great Cordless Phones AndroidTabletCity.com - Android Tablet Computers

Follow AppraisersForum.com:          Find us on Facebook            Follow us on Twitter


All times are GMT -5. The time now is 09:16 PM.

SiteMap: 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31, 32, 33, 34, 35, 36, 37, 38, 39, 40, 41, 42, 43, 44, 45, 46, 47, 48, 49, 50, 51, 52, 53, 54, 55, 56, 57, 58, 59, 60, 61, 62, 63, 64, 65, 66, 67, 68, 69, 70, 71, 72, 73, 74, 75, 76, 77, 78, 79, 80, 81, 82, 83, 84, 85, 86, 87, 88, 89, 90, 91, 92, 93