Insurance Appraisal Updates

In CAM Library, Insurance Appraisal by Patricia Staebler

Update or not Update – that
is the question; and if an update how often should it be done and foremost
important what should it look like?

Many of my clients are more than surprised
when they receive my proposal for an insurance appraisal and learn that
I do not require my clients to sign contracts for annual updates. Most
of the appraisers and companies who provide insurance valuation force
the client into an annual update contract. Which in my opinion is totally
unnecessary and here is why:

Florida Statutes 718.111 requires condominium
associations to have an insurance appraisal prepared every three years,
which means our legislators have the opinion it is sufficient to look
at “bricks and sticks” which most likely will not change a whole
lot, only every three years. However, if the property is insured by
Citizens, an insurance appraisal has to be prepared every 12 months.

In the condominium industry an update
report most often is comprised of a letter which just states the updated
value; there is no re-inspection, no new photos – just a letter. In
one case a property manager told me, the appraiser company called him
and asked the property manager to take some new pictures of the property
to be included in the update. And believe it or not, the property manager
did exactly that and emailed the photos to the appraisal company. That
means, the appraiser company did not go back to the property, just pulled
out the old file, applied a cost index, and that’s it.

Quite frankly, I think that is an opportunity missed. We are real estate professional with a specially educated eye for “sticks and bricks” and it can only be beneficial for the condominium association to have an objective opinion about their property. Going back to a property after three years (or 12 months when we deal with Citizens) and re-inspect the building refreshes the appraiser’s opinion of the property and in many cases we see issues with the building, the association might have missed.

For the broad public unknown, there are regulations in place which govern the work of an appraiser. The Uniform Standards of Appraisal Practice (USPAP), which contain federally accepted guidelines, rules and regulations and which is established, improved and promoted by The Appraisal Foundation, who in turn is authorized by Congress as the source of Appraisal Standards and Appraiser Qualifications, regulates the appraiser’s daily work.

Underestimated in its importance by many appraisers as well as non-appraisal companies who unlawfully provide insurance valuation, USPAP not only regulates the development of an appraisal report but also the update of a prior appraisal. And I cite from USPAP Advisory Opinion 3:

“The term “Update” is often used by clients when they are seeking a current appraisal of a property that was the subject of a prior assignment. This practice is addressed in Advisory Opinion 3.

When a client seeks a more current value or analysis of a property that was the subject of a prior assignment, this is not an extension of that prior assignment that was already completed – it is simply a new assignment. An assignment is defined in USPAP as:

a valuation service provided
as a consequence of an agreement between an appraiser and a client.

The same USPAP requirements apply when appraising or analyzing a property that was the subject of a prior assignment. There are no restrictions on who the appraiser is in such circumstance, who the clients is, what length of time may have elapsed between the prior and current assignments, or whether the characteristics of the subject property are unchanged or significantly different than in the prior assignment.”

In short, USPAP says, there are three different ways the reporting requirements of USPAP can be satisfied for an “update” assignment:

  1. Provide a new report that contains all the necessary information/analysis to satisfy the applicable reporting requirements without incorporation of the prior report by either attachment or reference.
  2. Provide a new report that  incorporates by attachment specified information/analysis from the prior report so that, in combination, the attached portions and the new information/analysis added satisfies the applicable reporting requirements.
  3. Provide a new report that  incorporates by reference specified information/analysis form the prior report so that, in combination, the referenced portions and the new information/analysis added satisfies the applicable reporting requirements. This option can only be used if the original appraiser’s firm and original intended users are involved, since the prior report was issued from that appraiser to those intended users, assuring they have access to a copy. When this incorporation by reference option is used, the following items form that prior report must be specifically identified in the new report to avoid being misleading:
  • subject property
  • client and any other intended
    users
  • intended use
  • appraisers
  • effective date of value
    or assignment results
  • date of report
  • interest appraised

Personally, to provide the client with
the best service I always opt for the first way; I provide a completely
new report with new photos resulting from a re-inspection. Just imagine
how awkward it is to provide the insurance agent with an update which
is based on an update and that is based on a report which was written
years ago. I have seen updates which were based on reports which were
five years and older and quite frankly I can not see any sense in this.

So for your next appraisal report make
an educated decision and think what provides your association with the
better value: a report which gets an annual update letter or a new report
every three years which will be based on a re-inspection and with that
receives the personal touch your property deserves.

Patricia Staebler, SRA

State-Certified General Appraiser RZ2890

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