The valuation part of most insurance appraisals you will see consists of several pages of calculations produced by an online valuation software from Marshall and Swift/Boeckh.
For a person not educated in construction valuation there is a lot of gibberish in this valuation and usually it all ends up with the question if the person who used the valuation software, knew what they were doing. You know what I am talking about, do you? Garbage in – garbage out, the big danger in every computer generated result.
I am thinking especially about our many seniors inhabiting the condominium buildings we appraise. In the end it comes down to the perception if you can trust the person who produced the insurance appraisal for your condo association, because most of the contents in the appraisal is difficult to understand for the user.
But what if we would include something the client really can relate to? Where you could go to and touch it, see it, feel it? I am talking about cost comparables and I will explain what I mean with that:
When I drive through my market area, I am always on the look-out for construction and if I see a multifamily building going up, I stop instantly and note down the address, the make-up of the property, and most important the developer and/or builder. I will then try to get in touch with the builder (most of them in the area I know in person) and will ask them to share the construction cost per square foot with me.
During the peek of the market when a lot of construction was going on, I had a whole catalog of cost comparables I could refer to. So, after using the valuation software, which we have to do by Citizens standards, I compare the result of the software with the matching cost comparable. This is a test of reasonableness for me to see if the valuation software is area specific enough to match the local cost per SF.
Wouldn’t it be so much easier for you, the condominium board member, if you could relate your building to a cost comparable in your market area? You really could drive by and say, “oh yes, I can see this building is comparable to our building and I believe the cost per SF is correct for my building.
It is not too much work to include a cost comparable in an insurance appraisal, although right now it is shear impossible because there is literally no construction in the multifamily sector. But if the construction picks up once again, you should request from your insurance appraiser to include a current cost comparable. This will give you peace of mind that your building was appraised correctly and your insurance appraiser can sleep better because he/she was able to proof that he/she used the construction software in the right manner. Good stuff in – good stuff out!
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