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Frequently Asked Questions
What is an insurance appraisal? Who should get one? What is included? Find out all the answers to your questions!
Insurance Appraisals FAQs
What is an insurance appraisal?
An insurance appraisal is a specialized report that provides an estimate of total replacement cost for a property in the event of a total loss. This is called the Total Insurable Value (TIV) and it is used for placing accurate and sufficient property insurance.
What is a desktop appraisal?
This is a comprehensive, cost-effective, and time efficient appraisal option. The only difference between a desktop appraisal and a standard appraisal is that there is no physical site inspection. Instead, all the property information is given to us directly by the client rather than us collecting it ourselves. Once we have the information, we follow the same process as a standard appraisal in determining an accurate and supportable estimate of reconstruction costs.
The process includes obtaining property photos and information through an electronic questionnaire. This is followed up by a phone consultation with one of our appraisal specialists to verify details. From there, we complete a thorough review of the building or condo plans, determine accurate measurements of the property, and review all regional building codes and municipal bylaws to determine a justifiable replacement cost value.
Clients can save on costs associated with a site inspection, and can complete the questionnaire on their own timeline. This helps to expedite the report completion allowing us to turn around the valuations more quickly.
Who should get an insurance appraisal?
All property owners should have an insurance appraisal completed on an annual basis, provided by a professional third party appraisal firm, to ensure that they are adequately insured.
This includes community and homeowner associations, condominium corporations, as well as commercial and privately owned properties.
Why do I need one?
Not only can an insurance appraisal give you peace of mind, but it also reduces your financial risk and liability.
Sufficient insurance coverage: An annual insurance appraisal ensures that you are sufficiently insured when faced with a major disaster. If you experience a total loss and your property is underinsured, the deficit in coverage falls on the property owners to pay out-of-pocket.
Avoid overpayment on premiums: An accurate replacement cost value ensures you only pay for what you need in insurance premiums, not more. We have seen cases of properties carrying excessive replacement costs, and as a result paying too much for insurance.
Avoid Co-Insurance: When a property does not have a current appraisal, it may be subject to a co-insurance clause that requires the owners to self insure a percentage of the replacement cost. Under this scenario, in addition to the deductible, the owners will be responsible for paying a portion of the reconstruction costs on a total loss and more likely, on a partial loss.
Condo Act compliance: Depending on your state’s condo act and legislative requirements, community associations are required to obtain and maintain insurance on the property that is equal to full replacement cost. This includes the common facilities, and any insurable improvements as outlined in their respective state acts. Only a professional insurance appraiser can provide a reliable estimate for full replacement cost.
Building modernization: An accredited and professional appraiser will account for costs to bring older buildings up to current codes. This would include expenses for sprinkler and fire protection systems, additional parking spaces, and handicapped access.
Who can determine Total Insurable Value?
Only a professional, experienced, and accredited insurance appraisal firm should be determining total insurable value. Our team specializes in replacement cost and has 25 years of experience appraising and producing insurance appraisal reports across North America. This should be the single most important thing when choosing an appraiser as it will ensure the most accurate and reliable valuation.
Additionally, fluctuating construction costs, changing building codes and municipal bylaws, and other challenges necessitate a professional and experienced insurance appraisal firm to determine the replacement cost value of the property. It is critical that the insurance appraisers consult appropriate local resources, including actual construction guides and local builders, when determining current reconstruction costs.
How is this different from a Market Value Appraisal?
An insurance appraisal is very different than a market value appraisal, and certain market value appraisal practices are not relevant to determining replacement costs.
A replacement cost appraisal looks solely at the cost to reconstruct a building and its structures in the event of a total loss and should be the only valuation used for property insurance. To determine this, we use the Cost Approach, which is based on the principal of substitution. This is a comprehensive valuation that looks at all soft and hard costs including building structures, systems, landscaping, and all finishes and fixtures throughout the entire property to achieve separate values for separate areas. At Normac, we also consider all demolition and removal costs (which can make up to 30% of a replacement value), upgrades to bring structures up to current building codes and municipal bylaws (with respect to fire codes, accessibility, and more), as well as all taxes and fees.
Alternatively, market value appraisers use either the Income or Direct Comparison Approach. The Income Approach is based on the theory that value is related to the worth of the future income that a property is capable of producing. The Direct Comparison Approach is also based on the principle of substitution, but states that a prudent purchaser will not normally pay more for a property than the price of an equally desirable property available under similar circumstances. These approaches consider additional costs such as the highest and best use of the property, exposure time, agreements for sale, options, property listings, historical sales, actual or anticipated public work improvement, easements, rights of way, land use contracts, and the effect on value of an assemblage. These are irrelevant to an insurance appraisal and can result in an incorrect replacement cost valuation.
Calculating replacement costs for the purpose of an insurance appraisal requires a specialized calculation and in-depth knowledge of construction costs. As specialists, Normac will never confuse our valuation methods and can guarantee the most reliable and accurate replacement cost.
How do you determine Total Insurable Value?
Normac’s proprietary costing database relies heavily upon actual construction projects and local costs guides which make our valuations the most reliable and reflective of the communities we serve. To determine Total Insurable Value, we include the following considerations in our replacement cost calculations:
- Property location and size
- Demolition and removal
- All materials to rebuild the property, including hard and soft landscaping
- Labor and professional fees
- Upgrades to current bylaws and regional building codes
- Inflation fluctuation
What items are included in the Total Insurable Value?
At Normac, we offer comprehensive valuations to ensure that no costs are overlooked or forgotten, ensuring you are properly insured.
- Demolition + Site Preparation: all costs associated with excavation, site preparation, and replacement of site services.
- Building Codes + Municipal Bylaw Updates: estimated additional costs necessary to bring the structures up to the current regional Building Code and municipal bylaws, specifically but not exclusive to parking spaces, fire protection, and handicapped access.
- Structure: foundation, exterior framing, exterior + interior finishes, roof structure, roof cover, balconies and decks, floor structure, common area finishes, common security systems, fire protection equipment, parking, and elevators.
- Residential Structures: all standard finishes and fixture as installed by the developer, including interior framing, floor, ceiling, and wall finishes, vaulted ceilings, baseboards, crown moldings, lighting fixtures, countertops, cabinets, plumbing, heating, ventilation, cooling, electrical, fireplaces fixtures, and plumbing.
- Commercial Structures: main demising walls. For the commercial units of strata-titled properties, structures also include costs for roughed-in electrical, roughed-in plumbing, and HVAC systems if they were included as part of original construction. The interior of the units will be assumed to be unfinished. For the commercial units of non-strata-titled properties, structures include basic plumbing, basic electrical and HVAC systems. The interiors of the units are assumed to have a basic level of finish for the floor, outside walls, and ceilings.
- Hard Landscaping: pavement and walkways, curbs, retaining walls, handicap ramps, gazebos, fencing, lighting, gates, benches, outdoor pools and outdoor jacuzzis, etc. Also, where applicable, roadways and underground services.
- Soft Landscaping: trees, lawns, shrubs, hedges, gardens, etc.
- Common Amenities: gym and exercise equipment, indoor pool, sauna, change room, common furniture, televisions, billiard tables, etc.
What is not included?
Assets that are excluded from the appraisal include land, individual unit betterments and improvements, and personal property. Unless otherwise stated in bylaws, improvements and personal belongings is the responsibility of the unit owner under their homeowner’s insurance.
For commercial properties, we can include contents by request. This would typically only include equipment, appliances, and furniture with a combined value equal to $1,000 or more. We will not include or appraise antique or religious items.
What kind of properties do you appraise?
- Community Associations of all shapes and sizes
- Low-rise and high-rise apartment buildings
- Townhome complexes
- Mixed-use developments
- Homeowners’ Associations
- Phased developments
- Light industrial properties
- Heritage buildings
- Places of worship
- Government and seniors housing
- Not-for-profit, and cooperative buildings
- Hotels and resorts
- Malls and commercial developments
- Office Towers
- Medical buildings
- Any other unique property types
What is the Insurance Appraisal process?
- Request a Proposal: You can request a proposal through our Request A Quote portal on our website, or by contacting one of our client services administrators.
- Authorization and Document Collection: Once you receive and review the quote, send back a signed copy to authorize and initiate the next steps. We require a copy of the digital building plans, site contact information, the current insured value, and the required effective date to proceed.
- Site Inspection: Our client services team will arrange for a site inspection and send a property information collector to conduct the site inspection.
- Review Property Details: Our appraisal team will review all the property details including the bylaws, building plans, as well the property’s regional and municipal building codes for updates.
- Produce Report: Once all details have been reviewed, measurement takeoffs completed and square footage confirmed, the appraisers will calculate the total replacement cost and finalize the report.
- Prepare Update (Upon Request): Upon request, we offer appraisal updates in Years 2 & 3 of our three-year program.
- Program Renewal: At the end of the three-year program, you will receive an authorization form to renew your program. Sign the authorization form and we will take care of the rest.
When should an appraisal first be completed?
With a new construction, a replacement cost insurance appraisal should be done by the date of first occupancy.
For an older property, if a current appraisal program is not in place, then one should be obtained as quickly as possible to ensure sufficient insurance coverage.
How often should a full appraisal be done?
Normac recommends that an insurance appraisal is completed every year. This is why we offer three year insurance appraisal programs with the option of receiving appraisal updates in years 2 and 3 of our three-year program.
Having a recent appraisal completed ensures that any fluctuations to construction costs, building codes, and bylaws have been incorporated in the TIV. At minimum, a full appraisal valuation should be completed every three years to ensure adequate insurance coverage.
Why do you ask for the insurance policy renewal date?
We recommend that all our clients align their insurance appraisal program effective date with the insurance policy renewal date. This can help streamline accounting, avoid mid-term adjustment fees, and ensure that the insurance broker always has a current valuation at the time of the renewal to secure the proper amount of coverage.
For the first report, this is not always possible, however our Client Services team will work to provide a solution so that the programs can be aligned in subsequent years.
Why do you need my current insured value?
We request the Current Insured Value or Cost Of Construction of all properties that are new to Normac prior to finalizing our appraisals as part of our due diligence. Like any appraiser, we must consider all information that is available to us.
One of the first things a market value appraiser will look for is what the building/unit sold for recently. If they can find a recent sale on the subject property, that is the best possible information they can get. Along with typical building information such as floor areas and quality of interior finish, insurance appraisers should also consider what a building is currently insured for, as well as what it cost to build.
While we conduct our own costing analysis, we have found that having the current insured value will alert us to when a property is under or over insured. We will then double check our estimates to make sure we are confident in them, and when necessary, provide a letter to backup our calculations.