Insurable Value

[Nancy Heiss]

One of my occasional (full fee) clients has recently changed to a new system. I received an order that included in the scope of work a form titled Insurable Value Worksheet. The data to be filled in: Cost Source/Section/Pages, replacement cost of structure, tenant improvements (in place), tenant improvements (yet to be installed) and personal property, FF&E. Has anyone done one of these before? Where do you get your data? I currently use an online estimator for cost approach. How does a real estate appraiser value personal property and, more importantly, why should we? Am I wrong to think that insurable value should come from an insurance professional?

 

[George Hatch]

The question at hand is "insurable value of which property rights?".

If you're only appraising the realty interests and are excluding any other non-realty rights then that wouldn't include personal property. I say "if" because on occasion real property appraisers do appraise property rights that include personal property and (more rarely) business interests.

 

[Nancy Heiss]

This is the blurb on the form: Insurable Value means the value of the destructible portions of a property, which determines the amount of insurance that may, or should, be carried to indemnify the owner in the event of loss. For practical purposes, the replacement cost estimate used to calculate insurable value should include the foundation.

 

[J Grant]

Whether you feel competent to take on this assignment is up to you. Personally, they make me uncomfortable as I am accustomed to using cost estimates as rough estimates to derive land value and contributory value of improvements for market value purposes.

Doing insurance value where the costs estimates of the components are taken literally and will be relied on if a home is damaged in storm or a fire is a responsibility I would rather not take on...there can lawsuits or challenges later as to how much an insurer has to pay out or if a home or component was over insured or under insured etc.

 

[CBBoston]

We do these all the time with commercial properties. We use M&S hardcopy but you can get it online too. I personally like the hard copy because I find all kinds of interesting info while paging thru it. However if you're not doing cost or insurable value frequently its too expense. You need to find out what exclusions they want to see. (foundation below grade etc). Assuming this is not MF M&S has a section for shell buildings and build out costs. If this is a new property the owner can probably get you the to date construction cost numbers and estimated cost to finish the build out. You can also try to contact other local developers or contractors. Try to avoid going down the segregated cost approach. Way too much trouble and we're not professional construction cost estimators. FF&E can be tricky depending on the property type. For MF M&S has costs for resdi appliances. With hotels they have costs per room. Also watch you time. Really complex properties can take up a huge amount of time.

 

[Michael S]

In general insurable value is the replacement cost of the improvements only with a small deduction for things like a foundation or buried pipes that would typically not be destroyed if a property were to burn down or have extensive water damage. Site improvements would typically not be included either as a fire or some other even that destroys the improvments will typically not destroy things like grading, landscaping, paving, etc.

Make sure you include some language that you're not an insurance estimator and that an expert in insurance underwriting or cost estimation should be relied upon to develop a true insurable value.

Or if you're still not comfortable, tell the client that you can't provide them an estimate of insurable value and that they need to go find someone else.

 

[J Grant]

Why take on the risk for an occasional client? (full fee or not). Long time steady work client might be worth it to delve into the subject and learn what there is to know.

 

[Nancy Heiss]

Why take on the risk for an occasional client? (full fee or not). Long time steady work client might be worth it to delve into the subject and learn what there is to know.

Thus the post, trying to find out what it's all about and worth the effort.

Thanks, all!

 

[J Grant]

It's up to you. I don't mind learning new things, if 1) The first few assignments when I am learning, there is not a high risk of being found incompetent later/and /or I can partner up with somebody experienced and 2), it is a type of appraising I think I would like to do in future or get repeat business from.

I can appraise manufactured homes but about 5 years ago decided not to take any more manufactured home assignments. I got them so infrequently that the income stream wasn't good, I had no interest in them, the intricacies about appraising them competently made me uncomfortable. There were better fits for me and other higher fee work that I would rather invest my time in getting good at.

Make a good decision for yourself .

 

[JTip]

Sounds like another hundy to me.

Insurable value is reproduction cost, like and kind, and built to current code (insurance ususally give another 10-15% for current code). Do not forget site cleanup/prep. House burns, cost to clean and then rebuild.