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Insurance Valuation

Insurance valuations are one of the most essential steps in protecting a property during insurance claims.

Commercial real estate insurance valuation provides small and medium-sized businesses with real, usable information regarding your property for accuracy in your insurance policy. Most businesses will grow and change throughout their lifespan by modifying office space, increasing profit margins, or even adding a secondary location. Even if you have maintained the same space, the value of your property is likely to have changed. It may be time to update the insurance valuation of your property to ensure your business remains fully protected under your policy.

What Is the Value of an Accurate Commercial Real Estate Appraisal?

Were you to sell your real estate today, you would likely have a property appraisal completed to estimate the value of the property. From an insurance point-of-view, it is just as critical to have such an appraisal done. It provides specific information about the value of your business property. Should something occur—like afire, vandalism, or other damages—this document will provide you with proof of your property’s worth and how much coverage you need to have in order to protect it.

Imagine you need to file an insurance claim. When you do, you find that your property’s commercial value (and thus, the coverage you have for your property) is significantly lower than the cost to repair the damages and reopen your doors again. This is a very real and common situation in the industry. With the investment in a commercial property insurance valuation, you can properly insure your company so it can continue to operate when covered risks occur.

How a Commercial Property Is Valued for Insurance Purposes

A number of factors are considered when the value of a business property is determined. Using these factors, an appraiser measures the property’s market value in a summary report using one of three methods for your insurance company. Some key valuation factors that will affect your property’s valuation include the following:

  • Location (city, neighborhood, etc.)
  • Highest and best use
  • Age and condition
  • Features (number of offices, quality of utilities, landscaping, etc.)
  • Gross income
  • Financing

It is then determined if replacement cost of actual cash value methods will be used to determine the value. Replacement cost refers to the amount of money that is required to replace items destroyed or damaged including furnishings, the building, and your equipment. Actual cash value is the replacement cost value minus the accumulated depreciation for wear.

Though more expensive, insurance for replacement cost is often necessary for most businesses. It’s important to hire a trusted, experienced appraiser to handle the valuation process outside of your actual insurance company to ensure your property is given the most appropriate valuation. Although commercial appraisals are relatively expensive, the value of protecting your business outweighs the cost.