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Insurable Value

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STEVE COOPER

Thread Starter
Junior Member
Joined
Dec 16, 2004
Professional Status
Certified Residential Appraiser
State
California
Got a request from the lender to provide a value amount that is insurable. The subject is a detached condo. My guess is this has something to do with the lack of a cost approach. What does insurable value have to do with me and does anybody do this? If you do this, how do you do this and ofcourse what can you charge for it?
 

PropertyEconomics

Elite Member
Joined
Jun 19, 2007
Professional Status
Certified General Appraiser
State
New Mexico
I think they should get an insurance type to give them an insurable value.
 

hastalavista

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Joined
May 16, 2005
Professional Status
Certified General Appraiser
State
California
I think they should get an insurance type to give them an insurable value.

That would be my first response.
However, there may be an opportunity here to sell some data.

If the client wants a "value", then you have an appraisal assignment.
I find that the clients I am able to speak in detail about this type of request don't want a value, they want an estimate of how much the property is going to cost to reproduce (RCN).
The difference between "insurable value" and RCN is significant as far as an appraiser (and my interpretation of USPAP) goes. I can provide the RCN as part of my Appraisal Practice offering- I can only provide insurable value as part of an appraisal.

If you are opposed to completing the CA on this assignment (which I can understand), consider replying to your client that you'd be happy to obtain a Replacement Cost New for the subject that they can use in analyzing their insurance needs. You'll even sell it to them at a discount since they've ordered the appraisal from you. If that works for them, its an easy 50-clam shells! And, most important, it suits their needs (probably better) than going through the rigmarole of of providing another appraisal.

Not all client requests require appraisal answers, but most can be addressed by an appraiser as part of their Appraisal Practice offering. Lots of other professionals are making money by offering what appraisers can but do not offer.
Naturally, one must be comfortable with providing such a service. But it is an option to consider.
 

PropertyEconomics

Elite Member
Joined
Jun 19, 2007
Professional Status
Certified General Appraiser
State
New Mexico
That would be my first response.
However, there may be an opportunity here to sell some data.

If the client wants a "value", then you have an appraisal assignment.
I find that the clients I am able to speak in detail about this type of request don't want a value, they want an estimate of how much the property is going to cost to reproduce (RCN).
The difference between "insurable value" and RCN is significant as far as an appraiser (and my interpretation of USPAP) goes. I can provide the RCN as part of my Appraisal Practice offering- I can only provide insurable value as part of an appraisal.

If you are opposed to completing the CA on this assignment (which I can understand), consider replying to your client that you'd be happy to obtain a Replacement Cost New for the subject that they can use in analyzing their insurance needs. You'll even sell it to them at a discount since they've ordered the appraisal from you. If that works for them, its an easy 50-clam shells! And, most important, it suits their needs (probably better) than going through the rigmarole of of providing another appraisal.

Not all client requests require appraisal answers, but most can be addressed by an appraiser as part of their Appraisal Practice offering. Lots of other professionals are making money by offering what appraisers can but do not offer.
Naturally, one must be comfortable with providing such a service. But it is an option to consider.


Denis .. I dont disagree with you EXCEPT .. the liability is greater than 50 clams.
 

Ross (CO)

Senior Member
Joined
Jan 17, 2002
Professional Status
Certified Residential Appraiser
State
Colorado
Steve,....Is that the totality of the request from this "lender" ? Have you perhaps already done a market value appraisal recently, it lacked a cost approach component in that valuation process, and now this client wants something focused toward "insurable" (replacement) value ?

Since Nov. 1st of '05 with the new-forms introduction AND the skeleton-out-of-the-closet matter disclosing this insurance gambit even more....it has been my standard procedure to request to look at the h/o's Declaration Page for the current (existing) hazard insurance policy they possess. It is a simple request on my part and has received NO direct rejections during these two years. In some cases where an imminent purchase is involved there may not yet be a policy, but I have seen a temporary rider document instead.

When one looks at a typical Declarations Page they usually see a "Dwelling Replacement" amount. I write down that $-number on my clipboard page, as well as the effective dates of that (year of) coverage, and thus can document that there WAS existing acceptable-agreeable-adequate hazard coverage in place as of the date that I visited the property ! I therefore have no connected obligation to supercede that....and have my report serve some "insurance" purpose. My information gathering step becomes a measure of MY own defense against any future claims issue, etc. It's the best I can do to protect my interests as I am NOT an insurance value provider.

In many instances the h/o will reply to my request by saying.....Oh, I already faxed that page to my lender. Bingo, just what I need to hear, and I note in my report near the not-for-insurance-purposes comment that "The property owner has already shared existing insurance information with XYZ Mortgage". No client has EVER come back and asked me to remove any such commentary in my reports since Nov. '05.

I make a brief reference in my report to the 13 Q&A's released by Fannie on Nov. 1st of '05, and in particular ? #12, where Fannie offers a very supportive set of sentences that clarify the protocol of the "insurance" issue regarding the appraiser's role in that. They expect the (1) borrower, (2) insurer and (3) lender as the three PRIMARY participants in the insurance decision process......thus leaving the appraiser at no higher than #4 in that sequence. I remind the client of that fact on Page 3 of the URAR with reference to Q&A #12.

Are you sensing that your input regarding an insurance-related business decision will be hanging solely on what YOU have been asked to now provide ? Are you "insurance" experienced to carry that request to completion ? Have you counseled with the property owner, THEIR selected insurance company and this lender so as to be recognized now as the willing insurance value provider ? If so, that's o.k.....I was just wondering. You could also suggest to the lender that they contact whatever insurer has been selected......and have THEM do the needed calculations. All this stuff contributes to the "may rely upon" factor that these new forms dredged-up as they emerged. (Ask your E&O provider for their comments)
 
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Fred

Elite Member
Joined
Jan 15, 2002
Professional Status
Retired Appraiser
State
Virgin Islands
The difference between "insurable value" and RCN is significant as far as an appraiser (
Not if you define the former as the latter, after communicating with your client about the type of decision they need to make.
 

STEVE COOPER

Thread Starter
Junior Member
Joined
Dec 16, 2004
Professional Status
Certified Residential Appraiser
State
California
Ross,

Thanks for the great detailed response. Yes, it was a recent market appraisal for a purchase. I think becasue it was a detached condo that looks very much like an SFR without land ownership that they were insistent upon getting what they call an insurable value. What they insure is up tp them but I know they were are bascially asking for some kind of cost approach. I wonder what form if any the appraisers use to help determine all of this. But I do like your comments and will print them out for some of my references. Thanks again.
 

Richard Carlsen

Elite Member
Joined
Jan 15, 2002
Professional Status
Licensed Appraiser
State
Michigan
By a "detached condo" I am assuming that you are referring to what we call a "site condo" vs a platted subdivision.

If this is the case, simply do the Cost Approach as you would any site built platted subject. You can determine the site value since there are no connecting improvements and the common elements value is contained in the site value of the unit unimproved.

We treat site condos the same as we treat houses in plats or with a M&B legal description. We do them on a 1004 and not on a condo form.
 

David Wimpelberg

Moderator
Staff member
Moderator
Joined
Mar 30, 2005
Professional Status
Certified General Appraiser
State
New York
My guess is this has something to do with the lack of a cost approach.

Not necessarily.

While many lenders may use the numbers from the cost approach for insurance purposes, the fact is those numbers were not developed as part of an insurable value appraisal. An insurable value appraisal has the same development/reporting requirements as any other appraisal, including identifying what is being insured and valued.

Some of the more sophisticated lenders actually have an insurable value requirement in their guidelines. I see that requirement spelled out specifically in trust company guidelines more than anywhere else.
 
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