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?

What are the numbers? You talking a little or a lot?

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.

I'm curious - what type of property is this?

Commerical- two structure hotel. It was only one of the building that had a question on value.

Would it impact your required flood insurance calculation?

Also - for commercial property you need the actual cash value for flood insurance - not the replacement cost.

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

Two structure hotel - I assume they brought you two polices?

They did. The other policy was correct.

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.

Do you care to give example(s) of what you mean or have seen in the past?

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.

Thanks for the insight.