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#2230263 - 02/05/20 01:39 PM Flood Replacement Cost Value
mdog76 Offline
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What is the best way to handle an issue of the replacement cost value being higher on the actual policy than what was determined on the appraisal?

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Flood Compliance
#2230266 - 02/05/20 02:04 PM Re: Flood Replacement Cost Value mdog76
rlcarey Offline
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What are the numbers? You talking a little or a lot?
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#2230489 - 02/07/20 04:44 PM Re: Flood Replacement Cost Value mdog76
mdog76 Offline
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The loan in question had $258,000 on the appraisal and $500,000 on the policy. The loan officer talked to the insurance company and was told "we just put a number" so don't think we will be using the replacement cost from any insurance company anytime soon.

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#2230490 - 02/07/20 04:49 PM Re: Flood Replacement Cost Value mdog76
Skittles Online
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I'm curious - what type of property is this?
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#2230510 - 02/07/20 05:53 PM Re: Flood Replacement Cost Value mdog76
mdog76 Offline
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Commerical- two structure hotel. It was only one of the building that had a question on value.

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#2230532 - 02/07/20 06:28 PM Re: Flood Replacement Cost Value mdog76
rlcarey Offline
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Would it impact your required flood insurance calculation?
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#2230535 - 02/07/20 06:37 PM Re: Flood Replacement Cost Value mdog76
Skittles Online
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Also - for commercial property you need the actual cash value for flood insurance - not the replacement cost.
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#2230541 - 02/07/20 06:54 PM Re: Flood Replacement Cost Value mdog76
mdog76 Offline
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We had the actual cash value from the appraisal. Here are the numbers brought to us:

Loan amount $2,000,000
Replacement (ACV) $285,000 on appraisal and $500,000 on policy
Max available $500,000

Customer came to us with a policy for $500,000 in coverage

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#2230554 - 02/07/20 08:36 PM Re: Flood Replacement Cost Value mdog76
rlcarey Offline
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Galveston, TX
Two structure hotel - I assume they brought you two polices?
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#2230561 - 02/07/20 08:49 PM Re: Flood Replacement Cost Value mdog76
mdog76 Offline
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They did. The other policy was correct.
Last edited by mdog76; 02/07/20 08:49 PM.
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#2230577 - 02/07/20 09:23 PM Re: Flood Replacement Cost Value mdog76
rlcarey Offline
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Galveston, TX
If someone has a building that can only be insured for ACV and they are buying twice what the ACV really is, I think I might be having someone take another look at that appraisal at least. Something doesn't add up. Although from a flood perspective, since it is fully insured to the maximum amount, it really is a non-issue. But it is things like this that make me go - hmmmmm? More than once these sorts of things turned into the tip of an iceberg on which the bank was sailing for on a direct course.
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#2230604 - 02/10/20 01:48 PM Re: Flood Replacement Cost Value mdog76
mdog76 Offline
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Do you care to give example(s) of what you mean or have seen in the past?

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#2230610 - 02/10/20 02:19 PM Re: Flood Replacement Cost Value mdog76
rlcarey Offline
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Well, you don't give a lot of information about the transaction, but with a $2MM loan, I assume that the market value in the appraisal for this property is quite high. Maybe that market value is based on income approach or the land contributes a significant portion of the value? But if the replacements costs are $1MM for the building and ACV is $250,000, then the building must be in some serious disrepair. It all depends on the circumstances. Especially for a hotel - can't build much a hotel for $1MM any more. It just raises a few questions more related to safety and soundness in making sure you have a valid appraisal. Maybe all these questions have already been asked and answered.
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#2230611 - 02/10/20 02:27 PM Re: Flood Replacement Cost Value mdog76
mdog76 Offline
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Thanks for the insight.

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