There are many reasons to have a replacement cost appraisal performed on your association’s property every three years at a minimum (1 bonus reason is that it’s the law!). But before we get into that, let’s discuss what a replacement cost appraisal is.

A normal appraisal will tell you how much money your property (including your land) is worth at the time. A replacement cost appraisal is only concerned with how much money it would cost to replace or rebuild your buildings, not how much it is worth on the market. When it comes to insurance, anytime an appraisal is referenced, this is the kind we are talking about! So here are three major headaches condo boards can avoid by getting regular appraisal updates.

1. Massive premium increases MID-TERM. Ever think you have finally got the budget all worked out and BAM! An unanticipated cost comes out of nowhere and wipes out your reserves. This is clearly not an ideal situation. We are already seeing 20% increases in premiums across the board in the market; by getting regular appraisals, you will not have to pay an additional 30% increase in premium mid-term when it is realized that your buildings costs 30% more to rebuild. We just recently took over an association that was not aware that it is their job to perform appraisals, and it was literally a 30% increase halfway through their policy term.
2. Paying out of pocket for losses. God Forbid you had a loss at your association. You would expect the insurance company to pay to get everything back to normal, right? Well, if your property is underinsured, they will still pay out, but it will not be the full amount of the loss. There is a clause is most commercial insurance policies called Co-Insurance, but this is not like going to the doctor’s office. This clause states that if you are underinsured by enough, they can reduce their payment to you by the percentage amount that you are underinsured. This clause applies to any loss, big or small! By performing appraisals, you can avoid paying out of pocket for losses that would have been paid by the insurance company otherwise. Where you live is one of the biggest investments you will make, it is nice to have peace of mind that it is properly covered. 
3. Dealing with mortgage companies. A lot of condo owners have mortgages. The mortgage companies want to ensure that the assets are properly insured. I am sure you see where this is going! Every year the mortgage company needs a certificate of insurance for the master condo policy for every unit owner with a mortgage. That is a lot of eyes looking at your insurance policies, making sure every aspect of them is correct.  If they find that your property (their interest) is underinsured, there will be no rest until that property is properly covered! I have seen banks back out of loans many times due to this exact issue. I have also seen many associations and property managers who have had to stop what they are doing and spend their valuable time on something that could have been avoided. By performing appraisals, you can cross off one of the main problems that banks find with condo master policies.

If you want to make sure you don’t get bamboozled by an appraisal surprise, "reach out to me" <marshall [at] wreninsuranceagency [dot] com>! I will be happy to provide you with information and resources to avoid these scenarios. I hope this has helped you understand the importance of performing an appraisal every three years. And don’t forget, per statute 718, it’s also the law! 😊

If you have any other insurance questions, please contact us.