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.
If you liked this post, subscribe by email (or RSS). Thanks for being here.
Great job Ryan. Smart to bring Penny in.
Thanks Joe. Penny really knows her stuff. I respect her work and she was kind to donate her time and insight.
Extremely timely and insightful article Ryan. Great post as always.
I would love to hear your thoughts on how the Northern California fires have affected the housing market in Sacramento. We were just putting our house up for rent and had several applicants applying for temporary relocation with insurance money.
Thank you Wes. I appreciate it. I wish this wasn’t a timely article, but unfortunately it is.
That’s a good question. I don’t see any huge impact yet for Sacramento, though it’s interesting to hear about temporary relocation for your rental. I’m sure we’ll see some of that. Will people relocate in mass? That’s another story. I think it’s maybe too soon to tell what will happen, though I imagine we will have some residents in Redding move to Sacramento at some point to relocate permanently. We saw some of that during the fires in wine country, though I think there was maybe more hype about residents moving in mass compared to what actually happened. Ultimately I’d be surprised if there was a mass exodus from other markets due to fire damage. People living in Redding, after all, love where they live and they are probably working there too. The job market in Sacramento is not a huge tractor beam to pull in outsiders either, so I’m guessing most will stay where they are and try to rebuild their homes and lives. With that being said, Redding is within three hours and many residents actually have family members in Sacramento, so in that regard it can be a viable option to start over here.
To be technical, right now inventory is really increasing in Sacramento (more on that next week), so if anything there is actually room for outsiders to come in to the market to buy and rent.
One more thing. The air has been filled with smoke lately and many areas surrounding Sacramento have been encouraged to stay inside. I wonder if some buyers have heeded that advice and have put their hunt on hold. I would guess most buyers have not, but I imagine some have. On that note, for anyone who says the market is slowing because of the fires, that’s really not true.
A great and timely article, Ryan. It’s helpful to know how appraisers handled these disasters in the past so that moving forward we can learn from what they went through. I’m sure her advice and experience would be helpful for any appraiser working in any disaster area.
Thank you Tom. These aren’t everyday appraisals, so appraisers living in impacted areas have to get up to speed. I hope in a small way this article will give some insight. I know an organization I belong to (REAA of Sacramento) hosted a post-disaster appraisal class last year because of the fires nearby.
Ryan,
I would add that Sacramento is relatively more expensive than Redding and less expensive than the wine country. It will be harder for folks to relocate from Redding than the wine country.
Excellent point Joe. Thank you for bringing that up.
Fascinating interview. I wish you all in California the best. Our thoughts and prayers are with those who are suffering losses from these devastating fires. Thanks for sharing this great information!
Thanks Jamie. I appreciate it. It’s crazy because in Redding alone there are over 1,000 homes that were destroyed.
That is horrible! Every year seems to get worse. Stay safe out there!
As a follow up, I have just looked at vacant lot listings/sales in Santa Rosa only. There are currently 150 listings and pending sales of vacant fire lots, and 266 closed sales of vacant fire lots since Jan 1, 2018. From what we saw in the Oakland fire I would expect to see more lots come on the market as fire survivors finalize their insurance payouts.
Thank you Penny. It sounds like quite a few owners are simply cashing out. I wonder why they are doing so. I wish we had demographics on the owners. Are they older and ready to retire? Are they already retired? Is it the insane cost to reconstruct right now that is a hindrance? This would be fascinating. What a struggle though for these owners to have had to pay a mortgage (theoretically) since the fire happened.
Thanks again for doing the interview. Thank you for the extra data here too. You knocked it out of the park.
Ryan sometimes it is the length of the process for people to get themselves and in order and their paperwork in order in order to get the insurance companies moving forward. So a lot of variables. We saw some owners that thought this was their opportunity to get out of California so there are those thoughts as well.
Thanks Brad. I imagine if the cost-to-build is absolutely insane too, and insurance recognizes that, it may prove to be a tipping point for the owner to move on out. In my area at least we see the most locals move to Texas, Nevada, Arizona, and Oregon.
Hello Ryan, If I could also add a few thoughts to what Ms. Woods presented (great job by the way). First make sure what type of case you are appraising for (scope of work and intended use). The reason I say this as some fire cases can fall under inverse condemnation, so make sure you are clear on the intended use so that you are using the right definition of market value. Then when doing the before and after ( as was mentioned) you can go out in time for land sales, after condition. However, make sure that you research the amount of $ spent on clean up and removal for subject lot as well as those sales that you review and include in your report. General reason is your day after the fire value may not include the subject site having been cleaned with debris removal and that will be something that will need to be analyzed regarding sales and impact on lot sale pricing. In these type of cases now, Army Corp of Engineers and city, county and state send in their teams and generally handle cleanup and removal (property owners can certainly do this under their own contract, just make sure you know the details, as was mentioned get as much data as possible). In most cases when clean up and removal is complete they bill the insurance companies and depending upon the responsibility of the fire, if any, suits may follow for reimbursements. So verify the comparable sale lots are cleaned and certified and ready to build and verify if any major differences in cost to clean exist, between sales and subject, if there are differences understand WHY?. Also important thought to remember is that in most instances the city or county will waive permits, school bond fees and other fees, so make sure the comparable sale has the same conditions to build. Stigma becomes another claim that will pop up. However, in some of the recent major fires, the stigma is short lived, if at all. Now I know I can hear Randall Bell ready to shoot me on that front (and since he is smarter, taller and better looking that me I would certainly defer to him with evidence), but depending upon the market at the time of the fire, the stigma may be limited or none existent and usually depends upon length of time and current market conditions prior to the fire and how the overall market reacts. (as a point of clarification I am commenting on this under a fire condition and not some other act that may have occurred to the site other than the fire). And yes I recognize that moonscapes may not be appealing. But do your homework on the market. It could be extensive period of time for recovery if the market conditions were like 2009, 2010 or 2011. So take a good look at the market to make some determinations on market conditions in the before and don’t be too quick to jump into the stigma discussion unless of course it warrants. I use the Witch Creek, Malibu, Sylmar and Grass Valley fires in So Cal as examples, so do some homework before moving to fast on that assignment and your conclusions. I would enjoy hearing from Ms. Woods on those thoughts or any of the other appraisers out there familiar with this type of work. It is always good for me to learn from those with experience. Ryan thanks and as always great job and please give a big Thank You to Ms. Woods. Regards
Thank you Brad. I really appreciate your tips and insight. There are some good gems here. It would be easy to not consider the cost to remove the structure and/or clean up, but that’s definitely something we have to pay attention to. Like you, I would love to hear from any other appraisers or real estate professionals who have two cents to pitch in. I’m always grateful when the blog comments add value and make the post better, and that’s what we’re seeing here. Anyone is welcome to share (home owners too).
Great information Brad! You included a lot of good information and expanded on my short answers. Going back to Ryan’s question about reasons for not rebuilding–it can be a long process from the date of the fire until a new house is built and furnished. Not everyone wants to deal with it, they look at moving as a way to help the healing process, to “move-on”. In many ways it’s a process of grieving that can’t be completed until they are settled into their new home whether it’s the rebuilt home or a home in a new location.
Thanks Penny. That’s some great insight. I think you’re right too. In a market that is already struggling with a shortage of skilled labor, that only exacerbates the issue because it means it’s going to take even longer to build. I can only imagine how difficult it is to make these decisions.
Great article Ryan. I did not know you had experience doing insurance appraisals after a disaster. I’ve done a few for floods and that is it. I guess that is the opposite of a fire.
Thanks Gary. I actually haven’t done appraisals after a mass disaster since there haven’t been any recent disasters in Sacramento. That’s why I interviewed Penny. I have done individual appraisals for a burned house for insurance purposes of course. The disasters around the region have really been in other markets 2-3 hours away.
Ryan, you have out-done yourself as usual. I cannot tell you how much I enjoy your posts. In fact, they are one of the extremely few emails I look forward to reading when I get them. So thank you very much. YOU ROCK RYAN!
Cindy Vedder
Cindy, you are so encouraging. Thank you SO much for your kind words. That’s really nice to hear. Sincerely, Ryan.
Thank you! My heart is broken by the fire disaster happening right now in my community. The Caldor fire continues to rage and travel up to SLT. I was one of the first evacuees in Somerset just off Grizzly Flat Rd. As of this posting, my property is still there. The outpouring of love and support has been inspiring. This post gives me some idea of how I can be of help when we start to recover and rebuild. Send us your prayers and keep this good information coming. Thanks again, Ryan.
Oh, Christine, I’m so sorry to hear about your situation. I’m so glad your house is still there and I’m so thankful to hear people are showing up for you. I think in hard times we can sometimes see the best of what people have to offer. If there is anything you need, my family is definitely around in any way for you. Blessings to you. Hang in there friend.