What is an Insurance Appraisal?

An insurance appraisal is a replacement cost analysis which provides an accurate estimate of the amount of insurance required to replace each structure and/or amenity exactly as it stands on the day the report was prepared. The appraisal provides both a hazard and flood insurable value (if the property is in a flood zone). Engineered Tax Services, Inc. calculates each buildings reproduction cost on a component-by-component basis from the ground up. Our software processes the complex calculations needed to correctly estimate the labor and material costs for each building component and system. Our software also calculates the taxes, fees, overhead and profit to provide an accurate estimate of what it would cost to reproduce the structure today. Engineered Tax Services, Inc. may be able to take advantage of additional savings from our report as it relates to your property insurance. Our detailed engineering report can eliminate the guess work that goes into underwriting property casualty policies and believe me that guess work never works to your favor. There is also potential savings in shifting insurance rates from real estate assets to personal property assets.

Why obtain an Insurance Appraisal?

Most property owners, managers, boards and/or insurance agents believe that obtaining an insurance appraisal for their property is one of the best decisions they have ever made.
The reasons for this are simple:
Our reports are unmatched in the industry and can serve as a cost segregation study, as well as an appraisal. A Cost Segregation Study was initiated out of a 1999 IRS memorandum allowing taxpayers to segregate various building costs into shorter depreciable lives was combined with an additional memorandum that personal property such as furniture, fixtures and equipment should be depreciated over a 5-year recovery period .

The IRS memorandum was significant to all real estate investors because the structure of a building does not only consist of the walls and roof and some interior rooms, but such other items as land improvements (storm sewers, curbs and sidewalks, parking lots, swimming pools, landscaping, etc.) and personal property (flooring, interior finishes, decorative lighting, kitchens, interior glass and electrical wiring for appliances, etc.)

While a property’s structure is subject to a 39-year recovery period, land improvements qualify for a 15-year recovery period and personal property qualifies for a 5-year recovery period. The IRS allows owners through the process of a Cost Segregation Study to identify land improvements and personal property which can be separately depreciated over the shorter recovery period such as 5 years. A building will typically yield 25%-35% of the total costs that can be segregated into land improvements and personal property. This can translate to major tax savings for savvy real estate investors.

The complete insurance appraisal includes:

• Definition of Hazard Valuation (Any non-flood peril)
• Definition of Flood Valuation (based on National Flood Insurance Program Guidelines)
• Detailed Building Descriptions
• Property Location Map
• Photographs of Each Appraised Structure (High Resolution Digital Photographs)
• Recapitulation of Values
• Replacement Cost Estimates (Hazard and Flood)
• Insurable Replacement Cost Estimates (Hazard and Flood)
• Depreciated Replacement Cost Estimates (Hazard and Flood)
All digital photographs taken at the time of the physical inspection are electronically archived for the clients use in the event of a loss.

Engineered Tax Services is a Nationally Recognized Leader in the valuation of Historical Properties and Antique buildings.

The valuation of historical properties is as much an art as a science, there are several different basis of value, and these must be matched with both the needs of the carrier and the expectations of the property owner.

The variance in TIV between “Historical Reproduction” and “Historical Replacement” can be substantial.  It is critical in meeting your valuation needs that appropriate valuation procedures be used, and that the policy be reviewed.

CASE EXAMPLE – Communication and Expectations:

A Courthouse was valued for to determine the insurable value, the property was well over 200 years old, and had musket holes from three wars (1776, 1812, and 1864).  In addition the property had just been fully restored.

The County that owned the property proudly boasted that they had spent over $15 million to restore the property, and were upset with the valuation came in at around $5 million.

The original policy was for the “Functional Replacement Cost” with an option for Actual Cash Value, if the property was not replaced.

The property was valued a 2nd time, working with their carrier to treat the property as “historical” and while the value in the report more then doubled, it did still not meet the property owners expectations.

The solution was a combination of education and loss control.

It is generally easier to create a replica of the property in the event of a total loss then to refurbish an existing property.

Some of the elements of the property, such as the bullet holes could never be replaced, and so a display showing the holes was made, and placed inside the property. ( a replaced section of the old courthouse was recovered and used to make the display)

We also recommended high quality documentation of the property, focusing on any filigree to help in restoration in the event of a loss.

By working with the property owner and the carrier we were able to meet their expectations and needs; more important this valuable part of American history was better protected.

Modern restoration needs to take into account not just the historical nature of the property but the green elements of construction; many of today’s restorations strive to be LEED certified buildings.  Engineered Tax Services is uniquely qualified to help meet these needs too. 

When a historical property is renovated and there is a focus on energy conservation and green construction the property may qualify for Energy Tax Credits.  These credits cannot often be used by the holders of historical properties, the can be “gifted” to the architect or contractors involved in the restoration.  These credits can range from between $0.60 and $1.80 per square foot.

How can Engineered Tax Services help you?

We can help determine the insurable value of your property, but more important we can help assure that the PROPER value is determined.

We can help with the LEED certification, and the Energy Tax Credits; that may be shared or transferred to your architect.  (This can help offset some of their costs.)

ETS’s staff is all licensed PEs and our experts have been involved in hundreds of valuations for Historical and Antique buildings.

There is no fee for our consultation, we will be happy to discuss your questions and to assist you in assessing your needs and requirements.