November 2009

IS YOUR PROPERTY PROPERLY INSURED?

Most people, including business owners and operators with expensive-to-replace property, realize they need to have such property insured. What many people fail to realize is the need to have this property effectively insured.

"Many people find over time that there is a great disparity between the value their property is insured for and the actual cost of replacing the property if it were to be lost," said Charlie Elliott, MAI, SRA, and president of ELLIOTT® & Company Appraisers. "If the property is not worth the amount of money they are insuring it for, they are wasting money by paying excessive premiums. If the cost of replacing the property is significantly higher than the amount that it is insured for, the consequences would be much worse."

Mr. Elliott recommends that businesses, insurance companies and individuals, who own expensive property, have the replacement costs of their insured property reviewed and updated every three years. This can be done by replacement cost evaluations performed by qualified professionals.

ELLIOTT® performs insurance replacement cost evaluations all over the United States, as well as in most foreign countries. Inspections of industrial properties, retail establishments, offices and homes are conducted by highly qualified professionals, including those with the coveted MAI and SRA designations. Not only is the insured real estate property evaluated, but so
are the equipment, inventory, furniture, antiques, fine art and other property within the real property.

BUILDERS AGGRESSIVELY HUNTING FOR LAND TO BUY

The housing collapse has been rough on the homebuilding industry, but now many of those builders, who survived this upheaval and are fortunate enough to have enough cash or credit on hand, are looking to purchase land at bargain prices.

"We are pursuing more deals than at any time in the past several years," said Larry Nicholson, president and CEO of Ryland Group Inc., a national homebuilder.

Ryland is one of several large homebuilding companies in the market for land. Southern California, Florida and Las Vegas are areas with land in extreme demand by builders, even though these locations have been hit hard with foreclosures and their real estate markets are still suffering. In some cases, competition for land leads to a purchase for an amount above the asking price.

"The stability we've seen has been nice, but it hasn't been for long, only five or six months," said Barclays Capital analyst Megan McGrath. "There is certainly some risk that if the market tails off again or if we start to see cancellations pick up, some of those deals that previously penciled may not pencil anymore."

FREDDIE SEES IMPROVED QUALITY SINCE HVCC IMPLEMENTATION

According to Patricia McClung, Freddie Mac's vice president of offerings management, the GSE has seen a 15% quality improvement in appraisals of loans it has purchased since the implementation of the Home Valuation Code of Conduct (HVCC).

The home-finance executive told attendees of the Mortgage Bankers Association's annual convention in San Diego that Freddie Mac based this figure on automated valuation model (AVM) reports on the loans it purchases. She said Freddie now sees appraisal conclusions running closer to corresponding AVM numbers.

BUILDERS LOOKING FOR CHEAPER WAYS TO MAKE HOMES

There are new buzzwords in the construction industry, "value engineering" and "perceived value." Anne Kadet, who writes for Smart Money, defines value engineering as "the art of building a house on the cheap without making it look cheap." She says that, in order to attain perceived value, builders "keep the high-profile amenities, but skimp everywhere else."

Some of the tactics used to cut construction costs without being so obvious are narrower garages, painted foam (instead of wood) beams above garage doors, smaller air-conditioning units, fixed windows and textured walls and ceilings.

"There aren't many cost-cutting measures that are good for the home owner and the home builder," said Mark Eberwine, a housing inspector in El Paso, Texas. "That's a rare bird."

HIGHER VACANCY RATE MEANS MORE RENT NEGOTIATION

According to a study published by Reis Inc. last month the U.S. apartment vacancy rate has increased to 7.8%, the highest it has been in 23 years. Furthermore, it is expected to continue to grow, at least throughout the winter.

Such grim numbers and forecasts are causing landlords to soften their policies with tenants. According to the National Association of Independent Landlords (NAIL), almost one third of its members have already reduced rents in the last 18 months and more than two thirds expect to do so in the near future.

"Landlords today understand what's going on," said NAIL President Tracey Benson. "They don't want an empty home any more than a renter wants to be asked to leave."

ASK MARTITIA

QUESTION: How does an appraisal consulting assignment differ from an appraisal assignment?

MARTITIA: The purpose of an appraisal assignment is to provide the client with an opinion of value. An appraisal consulting assignment may involve an opinion of value, but it does not have the appraisal or appraisal review as its main purpose. The purpose of an appraisal consulting assignment is to provide the client with an analysis and a suggestion or suggestions of how to solve a problem. In this case, according to USPAP, "an opinion of value is a component of the analysis leading to the assignment results."

Martitia Mortimer, Elliott’s executive vice president, answers appraisal questions on a regular basis in Elliott Real Estate News.

QUOTES

"A man begins cutting his wisdom teeth the first time he bites off more than he can chew."
                                                                                                                                 —  Herb Caen

"There is one thing even more vital to science than intelligent methods, and that is a sincere idea to find out the truth, whatever it may be."  —  Charles Pierce

"What the country needs are a few labor-making inventions."  —  Arnold Glasow

"A budget tells us what we can't afford, but it doesn't keep us from buying it."  —  William Feather

"There was no 'before' the beginning of our universe, because once upon a time, there was no time."  —  John D. Barrow
 

Newsletter Editor: kevin@elliottco.com
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