by Greg Friz, Director
An insurance appraisal is an assessment to determine the value of an insured item or property. It helps insurance companies determine coverage for the insured and set the appropriate premiums. Property condition and property quality are two factors that can impact the valuation of an insured property.
What is Property Condition?
Condition refers to the state or physical condition of a property and can include wear and tear, damage, age, and overall maintenance. A property’s condition can affect its value if the property is damaged or in need of repair. It can also affect the property’s usability, functionality, and the building’s lifespan.
Insurable value can be impacted by the building’s condition, as well, through factors like:
- Building Age: Older buildings may have been built with unique techniques or materials at time of construction which may not be able to be replicated today, leaving the buildings in a certain amount of disrepair.
- Construction Materials: Materials such as lead paint and asbestos, which were common during certain construction eras, have since been shown to be health hazards. These items, therefore, cannot be reproduced of the same like and kind when damaged.
- Location: Building codes and zoning changes affect the type of occupancy permitted to re-build in a certain location, preventing some building upgrades or needed reconstruction.
Insurance companies often assess the condition of a building during the underwriting process to determine the appropriate coverage and premium. Building condition is a consideration in determining insurable value and can directly affect the insured’s risk profile and costs associated with insuring the property.
What is Property Quality?
Quality, on the other hand, refers to the level of excellence or superiority of an insured property. It relates to the materials used, craftsmanship, design, and overall performance.
The quality of a building can affect its insurable value, through factors like:
- Construction Materials: A building made with premium materials such as brick, stone, or reinforced concrete may cost more to rebuild compared to one made with standard wood framing.
- Craftsmanship: The level of craftsmanship and ornateness will increase the building’s insurable value, because finding a talented craftsman to replicate elements with a high level of skill and detail can be difficult and costly.
- Architectural Features: Buildings with unique architectural features or design elements may have higher replacement costs due to the specialized labor and materials required for reconstruction.
Insurance companies consider these features when determining the insurable value of a building. A higher-quality building may command a higher insurance premium due to its higher replacement cost, but it may also be eligible for lower rates, if it is deemed to be at lower risk of damage or loss.
In fact, higher quality generally correlates with higher valuation. Items that are well-made, durable, and offer superior performance or features tend to command higher prices.
The Relationship between Property Condition and Quality
While condition and quality are distinct concepts, when it comes to property valuation, they’re often interconnected. For example, an item in poor condition may likewise be of lower quality due to material degradation or subpar craftsmanship. It is also possible for an item to be of high quality but still be in poor condition due to neglect, misuse, or lack of maintenance. Evaluating both condition and quality allows for a comprehensive assessment of an asset’s value, taking into account its current state as well as its inherent characteristics.
Documenting Property Condition and Quality for Your Insurance
Condition and quality play pivotal roles in determining the valuation of properties. By ensuring your property insurance valuation firm collects details on both the condition and the quality of each of your properties, you’ll have the more thorough information that insurers look for, and that can lead to better ratings, more complete coverage, and even better rates.
And if you’re between property appraisals? Centurisk’s Property Valuation Estimator tool (https://centurisk.com/amp-property-valuation-estimator/ ) can also lend a hand. It takes condition into account for your property, along with a wide range of important property modifiers, to help you estimate values more accurately in the years without appraisals.
About the Author
Greg Friz is a Director for Centurisk and resides in Southern California. He and his wife enjoy golfing, biking, and hanging out with their adult children and dog, Lambeau.