Property Valuations and Homeowners Insurance
By: Mary Thompson, Capstone Brokerage President, September 9, 2015
A home is the largest investment most Americans will make in their lifetime. During the loan process a home is often inspected and appraised. These services are used to help protect homeowners from purchasing a home with an existing issue, as well as to place value on a home to determine what the home is worth and the amount of loans that can be taken out on the property.
Appraisals and my insurance needs:
Real estate appraisals are lender-required reports that provide details about a specific property. The property appraiser will look at details in the home such as upgrades, dwelling’ room count, amenities, etc. They will also make note of issues in the home such as peeling paint, flooring conditions, appliances, etc.
In addition to looking at the specific property, information is also gathered from recently sold homes. An appraiser will then compare the subject property to local public records of homes recently sold in the area with comparable comps. The appraiser will then use observation and property records to prepare an appraisal report. Federal regulations require appraisers to complete a written report that complies with established uniformity standards. Typically the appraiser will also schedule a home inspection and take photos of the home.
After the initial appraisal, it can be cost effective to maintain the integrity of the valuation via an annual updating service. This is a very accurate way to determine the homes’ value to use for making any decisions regarding your homeowners insurance.
How home inspections affect insurance needs:
During an inspection the home is closely looked at, typically over 400 items are checked in the home. It is beneficial to the buyer of the property to know about the property before making a purchase. The home will be inspected in the following fields:
• Electrical
• Plumbing
• Heating and cooling
• Interior/exterior walls and structure
• Fireplaces
• Windows and doors
• Site drainage
• Roof and attic
• Structural foundation
All of the above areas make a significant impact on the property’s value as well as amount risk for the insurance carrier. If there is an issue in any of the areas, the inspector will make recommendations to repair the home to make it a more favorable purchase for the buyer, as well as to protect future insurance coverage of the home. If there are issues during the initial purchase, an insurance provider may make exclusions to the policy or require a higher premium if the issue is not resolved prior to start of coverage.
How property valuation affects my insurance needs:
Based on the appraisal and the home inspection reports, a dollar amount for worth of the property will be made. The property valuation is then used for home loans, and insurance coverage. When it comes to insurance coverage an accurate property evaluation is imperative. The property valuation will determine the market value as well help to determine what amount of coverage that is needed for the home to be replaced in the event of loss.
We recommend that you purchase insurance coverage at least equal to estimated replacement cost for the property. Determining your home’s estimated replacement cost is important because this will ultimately determine which policy options are available to you. It is impossible to predict today what the exact cost will be to replace your home in the future, which is why we recommend more coverage then the minimum replacement cost.
Currently there is a growing trend that homeowners are choosing to remodel their homes. The most common remodel is done in the kitchen and bathroom. Both situations can drastically change the property evaluation. So it is a smart decision to have the home appraised after remodels to be sure your homeowner’s policy has accurate coverage in the event of loss. Stay in contact with your insurance broker and provider to keep them in the loop of any upgrades made to your home to ensure you are maintaining sufficient coverage.
