03.03. Property Valuation Methods

Card Set Information

Author:
COC2
ID:
208352
Filename:
03.03. Property Valuation Methods
Updated:
2013-03-19 18:32:13
Tags:
Property Valuation Methods
Folders:

Description:
Property Valuation Methods
Show Answers:

Home > Flashcards > Print Preview

The flashcards below were created by user COC2 on FreezingBlue Flashcards. What would you like to do?


  1. Most common valuation method
    • ACV (actual cash value): cost to replace property with new property of like kind and quality less depreciation
    • replacement cost: cost to repair or replace property using new materials of like kind and quality with no deduction for depreciation
  2. Actual Cash Value
    • (+) most prevalent method
    • (+) supports the principle of indemnity
    • can use replacement cost minus deprecation
    • can use market value
  3. Accounting depreciation and economic depreciation
    • accounting: property is expected to have a useful life and is depreciated over that period; most common method is straight-line
    • economic depreciation: difference between replacement cost and current market value (results from physical / functional depreciation)
  4. Market Value
    • used by many court as ACV definition
    • difficult to establish if there have been few recent transactions involving comparable property
    • market valuation: analyze similar transactions (antiques, etc.)
    • market value of real property: reflects the value of the land and its location + buildings; most insurance policies don't cover land, so it's removed when establishing insurable value of property
  5. Broad evidence rule
    • a court ruling explicitly requiring that all relevant factors be considered in determining ACV
    • factors include: obsolescence, present use and profitability, alternate building uses, present neighborhood characteristics, long-term community plans, inflation trend
  6. Replacement cost
    • ISO HO-3: if ins value is 80%+ of replacement cost - pay lower of liability limit, replace cost, repair cost; else pay lower of limit, ACV, repair minus depreciation
    • to reduce moral hazard, most replacement cost policies pay out only after the insured has actually replaced the damaged property
    • ACV settlement option: offered so the insured can start repairing, and then has 180 days to refile claim on replacement cost basis
  7. Non standard valuation methods
    • agreed value method: watercraft, antiques, etc. Agree on maximum amount paid in case of total loss
    • functional valuation method: insurer is required to pay no more than the cost of repair or replace with property that is its functional equivalent (eg. schoolhouse turned into office, computers, building material)

What would you like to do?

Home > Flashcards > Print Preview