Connect with us

Latest Updates

Critical values ​​in the life cycle of the object



This publication is part of a series sponsored by CoreLogic.

Accurate valuation is crucial to the core functions of the real estate economy. From the list of property, up to the acquisition of insurance, there are 3 critical moments when the property will have a certain value associated with it – market value, appraised value and insured value.

Market value

Under the Federal Code, market value is defined as the most probable price that a property should provide in a competitive and open market under any conditions necessary for a fair sale.1 If we talk to non-specialists, the market value is the price that the buyer is willing to pay for real estate. Among professional real estate companies, market value often includes the value of land, improvements to land, buildings, and sometimes personal property and intangible assets.

Appraisers are often involved with lending clients to inspect real estate and determine market value based on factors such as location (ie waterfront, golf course view, etc.), condition, features, planning and sale of similar properties in the local community. .

Estimated value

Estimated value is the value calculated by the local property tax appraiser. Property tax appraisers are instructed to find the value of the property so that it can be properly taxed. Because valuations are often made periodically (usually every one to three years), the estimated value may not keep pace with fluctuations in the local real estate market.

Jurors, instead of evaluating one property at a time, evaluate the value of an entire area at a time. They do this using mass assessment methods.

Computerized Mass Valuation (CAMA) defines any software package used by the government to establish real estate valuations for property tax calculations. These programs use mathematical modeling (multiple regression analysis) to find the relationship between the sale price and other property characteristics, such as square meters or the age of the property. This ratio is then used to calculate the property valuation.

Mass assessment programs are particularly effective because they take data into account all sales instead of using limited data from only a few comparable properties. It also eliminates any bias when appraisers decide which property qualifies as comparable.

Insurance cost

The insured value is the cost necessary for the reconstruction of the object as a whole. This is the value used by insurance carriers to help set policy coverage limits that take into account the annual premium calculation

The insurance cost includes the costs of demolition of the existing structure, clearing the garbage and construction of the building at the moment. This means that future increases in labor and material prices, as well as new building codes, building plans, access to the site and permits, will be taken into account.

Why it matters

Insurance carriers understand the need to use the “insurance value” to cover A to ensure that their policyholders receive an adequate amount of payment for recovery when faced with the loss of their property. However, a common point of confusion for homeowners is the discrepancy between the values ​​of the reconstruction cost (insurance coverage) and the market or appraised value. Many homeowners mistakenly believe that the cost of renovation is equal to the amount they paid for the property. Reconstruction costs are generally higher than market or estimated costs because they use current material and labor costs within a certain geographical area.

Another point of confusion is often the term “Replacement Cost New”, which is used by the appraiser and the expert department. Replacement cost New often uses building codes and labor and material costs at the time the property is built, rather than using modern codes and costs. They also do not include demolition costs, debris, and site availability, which are common in disaster recovery scenarios. Replacement cost New is not recommended to determine the cost of renovating the house.

It is important for consumers to understand the many ways to determine value and the role that each value plays in the life cycle of an object. Realtors, appraisers, insurance carriers, and the data used to aggregate appraisals are critical to ensuring accurate property appraisals.


  1. Currency controller. 12 CFR § 34.42. Retrieved from

The most important insurance news in your inbox every business day.

Get a reliable insurance industry newsletter

Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *