Today I want to share a few things to know about appraisals after a house has burned down. This isn’t a very easy subject – especially for property owners looking for information after a recent fire. If that’s you, my heart goes out to you and I am sorry about your loss. I hope some of this information helps give a little more context for your situation. If you have any questions, feel free to ask.
Here are a few things to know about appraisals on burned houses. Yes, this is me inspecting a charred home in the Natomas area of Sacramento a few weeks ago.
Repaired Value: Usually the client is going to want the appraiser to do an appraisal as if the fire did not happen, or in other words give a “repaired value” instead of an “as is” value. In fancy terms, the appraiser will use a hypothetical condition to appraise the property, which means the appraiser considers something as fact for the sake of analysis even though it is not true. In this case the house is considered to be in whatever condition it was before the fire even though it is obviously damaged.
Inspection: The appraiser will likely do a physical inspection of the property as long as it safe to do so. Of course a client may also allow an exterior-only appraisal (aka “drive-by”) if that suits their needs. The appraiser can do whatever inspection is required so long as the appraiser can get enough information to render a credible value.
Hiring an Appraiser: The insurance company or a contractor will likely hire the appraiser. The property owner can of course find an appraiser too. I recommend connecting the appraiser with the insurance company to be sure the appraiser and insurance company are on the same page about methodology, timeline and pricing.
Property Research: The appraiser will be trying to understand what the house was like before the fire, so the appraiser will gather details about the house from a variety of sources like a physical inspection, Tax Records, the home owner, neighbors if need be, Google Maps, aerial views and old MLS listings. All or some of these sources can begin to piece together facts about the home and help the appraiser do an appraisal despite the damage.
The Fine Print of a FEMA Flood Zone: If you live in a FEMA flood hazard zone in the Sacramento area and your house has severe damage from a fire, it is important to know the fine print. Here’s how it works. Due to FEMA guidelines, you can improve a home up to 40% of the assessed structural value of the house or obtain an appraisal and get up to 50% of the market value of the structure. Note that I said value of the “structure” because an assessment is usually broken down between “improvements” and “land”. This means if your assessment is $200,000 with $160,000 of that assessment accounting for improvements (the structure) and $40,000 for land, you can only make $64,000 in repairs (that’s 40% of $160,000). That won’t go very far when there is significant damage, which unfortunately sometimes means home owners literally cannot repair their homes. However, you can also get an appraisal to try to capture a bit more value. An appraisal can work to your advantage when the assessment is really low (if you purchased a long time ago or bought several years ago before the market saw dramatic increases in value). The appraiser will do the valuation as if the house was NOT burned, and then 50% of the market value of the structure can be used for repairs. It would be great if 50% of the total market value of the house and land could be used, but it is only 50% of the market value of the structure (or in fancy terms, 50% of the depreciated “as is” cost of improvements). The market value of the existing structure is found by doing The Cost Approach in the appraisal, which basically considers the cost to build, amount of depreciation the house has (before the fire) and the value of the land.
Please let me know if you have any questions or if I can assist in any way with your situation.