It’s been an utterly devastating fire season in California, so I wanted to talk about what happens on the appraisal side of things after such a disaster. This isn’t something that people ever think about until they have to, but now is one of those times. I figured this would help home owners with questions and it would help give real estate professionals a resource to dig deeper.
Today I’m interviewing Penny Woods, an appraiser colleague based out of Pleasanton CA with 30 years of experience (see bio below). Penny knows her stuff and she has vast experience with post-disaster appraisals.
Ryan: Tell us about your experience with post-disaster appraisals.
Penny: In October 1991 the Oakland firestorm totally destroyed 2,800+ single family homes and an additional 400+ townhomes. I worked for an appraisal fee office that had a major insurance company as a client with over 500 total loss properties. For the next 7+ months one other appraiser and I did nothing but retrospective fair market valuations for structures that were completely destroyed. At that time, insurance policies were written and paid out on “Market Value”, but this fire changed that. Now they are written and pay out based on “Replacement Cost”.
Ryan: When is an appraisal ordered after a disaster?
Penny: Appraisals after a disaster can be ordered at different times for different reasons. When it is safe to return to the fire damaged property the insurance company will start the process to get their replacement cost (Cost Approach) valuation. Additional appraisals may be needed by the property owner following the insurance company’s initial replacement cost valuation for: property tax assessment reductions, to challenge/rebut the insurance valuation, IRS causality loss tax claims, or for other types of civil litigation.
Ryan: How does an appraiser value a home if it is no longer there?
Penny: As with any retrospective valuation, some of the research is exactly what the appraiser would do for any assignment and some of it is very different. Data sources include: public tax records; planning department plans and permits; old MLS listings; the lender may be willing to provide an old appraisal, the data collected by the insurance company, an in-depth talk with the property owner; and don’t forget family photos! Yes family photos are usually still available at the homes of grandparents, aunts & uncles, and family friends. You’d be amazed how much information is available in a photo from Johnny’s birthday party or a holiday dinner.
Ryan: What date of value is used during the appraisal?
Penny: The initial appraisal is a retrospective valuation, which means the value is usually for the day immediately before the fire loss. Any subsequent appraisals may use the same retrospective date or post fire dates depending on the use/purpose of the valuation. An appraisal for a property tax reassessment would use a date after the property had been damaged. This could be the day after the fire or a more current date depending on the assessment dates. To challenge/rebut the insurance company’s valuation would require the same retrospective valuation date used by the insurance company. If the property owner needed to provide information to the IRS for a casualty loss claim there would be 2 valuations, “immediately before” and “immediately after”. The IRS “immediately before” value is the retrospective before the fire and the “immediately after” date can mean up to 2 years from the date of the loss to allow for time for the general clean up and/or recovery. If there was additional civil litigation the date or dates would be specific to the cause of action.
Ryan: What type of information does the owner need to provide to the appraiser?
Penny: As much as possible!!! Appraisers, for you to be able to complete a credible appraisal you need to have as much information from the property owners as they can provide. This could be a difficult process because you will be working with people who are in a very emotional situation. Be patient, and professional. Understand that if you are doing a lot of this type of work it may also become a very emotional and/or stressful situation for you too.
Ryan: Does the appraiser focus on the value of the structure or the land too? In other words, what is the insurance company really asking for?
Penny: The insurance company is looking for the value of the onsite structures that have been destroyed. The land is still there and not insured so the insurance company only wants the value of the structures. With the other types of valuation assignments we have been discussing it is a case by case situation, some will need separate land valuations and some won’t.
Ryan: What did you see happen to the market in Oakland during the big fire in the 90s? Did it collapse, stall, decline, etc…?
Penny: The Oakland fire occurred in October of 1991. This was a time throughout the country where the economy was in a decline. In the Bay Area the decline could be tracked from the Loma Prieta earthquake in October 1989 and continued through the mid 1990’s. It is difficult to say how much of the decline that occurred in the Oakland and Berkeley Hills was directly related to the fire and how much was the overall declining market trends. There was also a unique situation where the majority of the properties that before the fire had nice wooded views or little “peeks” of the San Francisco Bay suddenly had partial to full bay views! That alone increased the value of these properties. It was a slow process to rebuild, a total of 700 permits for new construction had been issued 1 year later and none of them had actually started to build. Again some of that could certainly be attributed to the overall economy. I believe that each market will react differently depending on the extent of devastation and the specific economy of the surrounding area.
Ryan: Any advice you’d give to owners who just lost a home?
Penny: While your life is certainly disrupted beyond most of our imaginations, don’t rush! Be sure you know what all of your options are before taking any major steps. Consult professionals in each of the fields where you have questions and need information and help.
Ryan: Any advice for appraisers too?
Penny: These disasters could be a large source of potential business. You must first remember that you are benefiting from other people’s major losses, so always be as professional as possible! Not every appraiser has the temperament to take on this type of work, but it can also be very rewarding helping the fire survivors rebuild their lives even if it doesn’t involve a move to a different location.
Ryan: Thanks so much for doing the interview. You killed it. Everyone, if you need an appraiser in Penny’s area, please reach out to her.
Penny’s Bio: B. Penny Woods, owner of BPW Appraisal & Realty Service based in Pleasanton, CA, has been working as an appraiser for the past 30 years, coming from a background of property management and real estate sales. She got her start in appraising by working for a fee appraisal firm; obtaining appraisal experience with both residential and small commercial properties. In 1994 she started her own firm and now does only residential appraisal work. Penny specializes in the unique and unusual properties, completing assignments for lender financing, probate, divorce, estate planning, litigation & expert witness testimony, earth movement, fire damage, and insurance claims. Penny’s phone #: 925-485-0641
I hope this was helpful and interesting.
Questions: Do you have any questions? Any stories to share? How have you seen the market change after a fire or disaster? I’d love to hear your take.