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Help! Insurance Appraisal

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Travis McGee

Senior Member
Joined
Sep 18, 2004
I have been asked to do an appraisal on a single family dwelling for insurance purposes. the owner says the insurance company needs an appraisal, in particular replacement cost for the house. I would be inclined to do my regualr appaisal with general Marshall and Swift replacement figures in cost approach in box. Am I obligated to go into greater detail than normal?

The owner says he doesn't want land appraised , as only needs insurance for the house. I think I need to separate it out anyway. Any advice from somene who has done one of these would be much appreciated.
 

Jeff Horton

Senior Member
Joined
Jan 15, 2002
Professional Status
Certified Residential Appraiser
State
Alabama
I did one on a house that had burned to the ground. I was at the house a few days before it burned to do a refi appraisal. The insurance company asked me to appraise it since I had just been there.

In my case I did a standard URAR with a few additional comments and they were happy. I think I deducted the land from it?

In your case I would think if they want replacement cost then your looking at using a detailed Marshall and Swifts cost approach to replace with no depreciation. They want to know what it would cost to replace the house. Not what the market would pay for it. Market value is not what they want sounds like.

Sounds pretty straight forward to me.
 

Restrain

Elite Member
Joined
Jan 22, 2002
Professional Status
Certified General Appraiser
State
Florida
I would use M&S, adjusting it against known construction costs in your market. I've done these before to try to prove value before a fire, etc. Just do your job but support your Cost Approach from the local market.
 

Mike Garrett RAA

Elite Member
Gold Supporting Member
Joined
Jan 14, 2002
Professional Status
Certified Residential Appraiser
State
Colorado
Do a normal appraisal. Make sure you are using current Marshall/Swift cost data adjusted for your local market. You might run the numbers by a contractor before completing the assignment. Let the insurance company extract out the land cost.
 

hal380

Senior Member
Joined
Apr 26, 2003
Professional Status
Certified General Appraiser
State
Connecticut
This sounds like a competancy (sp?) issue to me.

Why dont they simply go to a contractor and pay for and get and estimate.
Maybe cus the contractor doesn't carry E&O insurance.

Yes we do the cost approach using M&S but we normally dont place predominant weight on that value.

I dont think I would want to do this kind of assignment.

Sorry for being negative, but just dont like the feel of it.

Hal
 

Travis McGee

Senior Member
Joined
Sep 18, 2004
Thank you all for your help! I am going to do a straight forward appraisal with cost approach how I normaly do it. That way stay in my area of expertise.
 

Bill_FL

Senior Member
Joined
Aug 23, 2002
Professional Status
Certified General Appraiser
State
Florida
One extra sliver of advice. I have done a few of these. I always did a regular appraisal with a few additional items.

First, I made a M & S residential sheet in excel. It works like their worksheet in the book. That way you know all of the items you are supposed to account for are there. I included it in the appraisal.

Second, I always provided a land sales grid. Since they often want to back out the land value, I made sure they understood how I arrived at the land value.

As a side note, has anyone else noticed insurance companies are balking at removing land values? as are lenders?

Now, I have found many saying the insurance must be equal to or greater than the loan. So, if you have a $30,000 house on a $1,000,000 tract of land, and have a $900,000 mortgage, they want $900,000 insurance.
 

Ted Martin

Senior Member
Joined
Jan 17, 2002
Professional Status
Certified General Appraiser
State
Kansas
Just to cover youself. You might want to spend a little extra time on developing the land value even though they are focused on the improvements. The land value is developed by you and will be the focus of any future legal action should push come to shove.

The improvement costs from M & S are a published source which is recognized in our industry as being "reasonable". Take careful notes of why you are deviating from any published data. I'm not saying that refining the M & S isn't a good idea just make sure you have notes as to who you talked to and why you changed the numbers.
 

John Wilson

Junior Member
Joined
May 1, 2003
Professional Status
Certified Residential Appraiser
State
Illinois
Originally posted by JO ANNE GLANTZ@Jun 9 2003, 06:43 AM
...the owner says the insurance company needs an appraisal, in particular replacement cost for the house.

Since when do insurance companies ask for replacement costs, or appraisals for that matter? I wish they would.

They use their own cost tables and even M&S. I have a cousin who works for Alstate and she plugs numbers into M&S all day.

Replacement costs for insurance companies have nothing to due with market value or any appraisal form you might be thinking of using. If you are going to do this, plug your numbers into RES 7and hand them a print out. Zero dollars for the land of course.

Insurance companies have no interest in what the dirt costs under the house or current market value. When you insure your house it's just that, not the land.

How many of you have your house insured for it's appraised market value? If you do, you're over insured and paying too much on your premium.
 

John Wilson

Junior Member
Joined
May 1, 2003
Professional Status
Certified Residential Appraiser
State
Illinois
Originally posted by Bill Potts@Jun 10 2003, 06:22 AM
Now, I have found many saying the insurance must be equal to or greater than the loan. So, if you have a $30,000 house on a $1,000,000 tract of land, and have a $900,000 mortgage, they want $900,000 insurance.

I was reading too fast, Bill's right on that one. Replacement cost or Mortgage amount,which ever is higher.


ooops........
 
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