15 May What is an Insurance Appraisal
What is an Insurance Appraisal?
As real estate investors I need you to forget EVERYTHING you know about a real estate appraisal. An Insurance Appraisal and a Real Estate Appraisal have nothing in common with each other except the address of the property. Different rules are applied to each procedure and they achieve different results and values. An insurance appraisal is used to determine Scope and value of damages to an insured property. The result can be much, much more or way, way less than the amount determined by a real estate appraiser or Fair Market Value.
So what do you do when you disagree with the insurance company about the amount and value of your claim? Request the amount of loss be set by Appraisal.
First the Bad News: You cannot sue your insurance company over the amount of damages until after the appraisal process has been completed.
An Insurance Appraisal is your right and is contained in the provisions of most if not all property insurance policies. You will pay the entire cost of hiring your appraiser and one half of the cost of hiring an umpire.
Your Homeowners insurance policy is divided up in to Sections, Contained in Section I and Section II These sections cover Property Coverage and Liability Coverage. In the Section for Property Coverage you will find a paragraph called “Conditions” under that will find a subparagraph very similar to this:
If “you” and “we” fail to agree on the amount of loss, either may demand an appraisal of the loss. In this event, each party will choose a competent and impartial appraiser within 20 days after receiving a request from the other. The two appraisers will choose an umpire, who shall be competent in the trade or skill necessary to assess the loss. If they cannot agree upon an umpire within 15 days, “you” or “we” may request the choice of an umpire be made by a judge of a court of record in the state where the “residence premises” is located. The appraisers will separately set the amount of loss. If the appraisers submit a written report of an agreement between them to “us” the amount agreed uponwill set the amount of loss and be final. If they fail to agree, they will submit their differences to the umpire. A decision agreed to by any two will then set the amount of loss and be final.
Each Party will:
- Pay its own appraiser; and
- Bear the other expenses of the appraisal and umpire equally.”
The language will vary somewhat if the property is a rental property but the process is handled the same way.
Example: The property owner you thinks the fire damage to their rental unit is worth $100,000.00. However, the insurance company only offers you $50,000.00. What do you do?
- Check to see if your policy pays Actual Cash Value (ACV) or Replacement Cost Value (RCV). If your policy is RCV the insurance company will not pay the full replacement cost until the repairs are completed. The insurance company is well within their rights to apply proper depreciation until the damages are repaired. You have an additional $50,000.00 in replacement Cost Benefits and there is no need to request Appraisal.
- If your policy is an Actual Cash Value policy the $50,000 is all you will receive unless you prove to your insurance company that they missed something or have applied excess depreciation to the loss. This is up to you to prove.
- Your contractors estimate is $100,000.00 and the insurance companies full repair estimate is $50,000.00 before depreciation. You should get a second repair estimate from a competent contractor. If it supports your original contractors estimate consult with a public adjuster and consider taking the claim to Appraisal.
At some point both sides will name their appraisers and the appraisers will meet to discuss and review the scope of the loss and damages.
Let imagine that you hired me as your appraiser. To serve as your appraiser, Skidis & Co. requests a $500.00 non refundable deposit and charges $150.00 per hour labor rate for duties related to the appraisal including field and office time.. We charge $50.00 per hour labor for travel time and the current federal rate for mileage reimbursement. Every 40 miles driven is charged as 1 hour travel time. Expenses are billed as incurred for overnight travel and other incidentals to the appraisal.
So if your loss is 130 miles away that would be 3.1 hours at $50.00 plus 130 miles at .54 cents per mile or $155.00 travel time and $70.20 mileage or $225.20 cents just to get there and another $225.20 to drive back for a total of $450.40 before even starting the appraisal. That is why the $500.00 is non refundable.
What I am trying to say here is make sure it is worth your while to hire an appraiser.
The insurance company’s appraiser is not supposed to be the adjuster who is causing all the trouble. They should be independent and free to settle the claim as they see fit.
Then the two appraisers meet and review the scope and damages of the claim and begin to write their own independent estimates.. That can take anywhere from one to three days on the scene depending on the size of the claim and the seriousness of the damages.
The two appraisers then go back to their offices, hotel room or local coffee shop and start writing their estimates. Once complete they exchange their estimates with one another. If they do not reach an agreement then the umpire is brought in.
The appraisers are only supposed to submit their differences to the umpire. So if they agree that the room will take 25 squares of 3 in 1 tab shingles at $135.00 per square then that item is not submitted to the umpire.
The umpire is supposed to be free from allegiance to either party of the claim and should make their own decision. Insurance companies have been known to hire independent adjusters with whom they are familiar to make sure their side is heard. You remember Pete from my previous article? Make sure the Umpire is not Pete.
At some the umpire and at least one of the appraisers will sign the “Declaration of Appraisal” and that decision is final. That is unless one party then sues the other.
At that time whether you were found victorious and went down in flames one half of the fee charged by the appraiser is due and you owe it.
Appraisal is not for the fun of it. Make sure you have a chance to win, because there is no guarantee your side will succeed.