Insurance

April 11, 2023 Published by Golden Horseshoe Chapter - By William Shin

All Things Appraisals – Insuring to Value

From the Volume 15, Spring 2023 issue of the CCI GHC Condo News Magazine

What is an Insurance Appraisal and when should it be done?

An insurance appraisal provides an estimate of total replacement cost for a property in the event of a total loss. We call this the Total Insurable Value (TIV) and it is used for placing adequate property insurance. As a board member or an agent acting on behalf of a condo corporation, you have a fiduciary duty as per the Ontario Condo Act to insure to full replacement cost. Often, your declaration will have a clause to obtain an appraisal every (3) three years, by a third-party professional appraisal firm.

Report Delivery Timeframe

When hiring an independent appraiser, you should be seeking an accredited firm with experience and justifiable valuations. Report delivery times may vary, but we recommend seeking quotes 3-6 months prior to your insurance policy renewal date. This gives your corporation ample time to review proposals and select a firm, provide documentation, schedule a site inspection, and receive your valuation well before your renewal date. This will ensure that your broker can negotiate the best possible terms on your behalf.

Inspection Process

When on site, an appraiser will conduct a full exterior and interior inspection of the property to collect construction details and note any critical components needed for a rebuild. This includes interior finishes from floor to ceiling, mechanical systems, construction materials for the building itself, common property, and exterior components such as roadways and landscaping. The architectural blueprints for the property along with the corporation’s governing documents will provide further direction to the boundaries and limitations of what is to be included.

Costing Approach

Insurance appraisers use what is called a cost approach, which is based on the principle of substitution. If a property were to experience a total loss, the valuation should represent the total cost to rebuild an equally desirable replacement. With the property details in hand, costing databases are referenced to determine accurate costs per square foot, and adjustments are then made for specific components installed (i.e. sprinklers, appliances, fire and security systems, HVAC, balconies, gazebos, etc.). For a more accurate and reliable appraised value, we recommend choosing an appraiser who consults local, Canadian costing sources.

Building code and bylaw reviews must also be done to ensure compliance with today’s building standards. This means that fire protection, handicapped access, and parking spaces for new construction must meet federal, provincial, and municipal expectations.

An appraiser must also consider the cost of demolition and debris removal in the event of a total loss. This largely depends on the location, size of property, and type of construction and is a critical cost that should be considered for a rebuild.

How does your corporation benefit from an appraisal?

An insurance appraisal will ensure that you have enough insurance coverage in the case of a loss and not paying out-of-pocket for a shortfall in coverage. It also means that you are paying accurate premiums; neither underpaying or overpaying. Also, an up-to-date appraisal makes certain that you are compliant with the Ontario Condo Act and your fiduciary duty to the corporation is met.

Finally, in this challenging insurance market, having an independent 3rd-party appraisal can help elevate your property in the eyes of the insurer because the details included in the report allow them to have a higher confidence to covering the risk on your property.

William Shin, BA is the Business Development Associate for Normac, specializing in insurance appraisals. He has a Bachelor of Arts in Economics. An active member of the condominium community in Ontario, William is involved in the Canadian Condominium Institute (CCI) Golden Horseshoe, Grand River, Toronto, South-Western, and Eastern chapters. He strives to deliver a high level of service by ensuring the appraisal needs of his clients are met with the utmost satisfaction.