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What Is Property Cost Evaluation?

Posted July 21, 2019 in Property Cost Evaluation

When the term ‘property cost evaluation’ pops up, what comes to mind? Although the words may make sense, the phrase can leave you scratching your head.

Below is a detailed guide to understanding what the property cost evaluation process is and what factors are considered when evaluating a residential or commercial property.

What Is the Process of Property Cost Evaluation?

Essentially, property cost evaluation is similar to a full appraisal with fewer details. Residential and commercial properties need to report specific information to qualify for insurance. To adequately insure the location, an assessment or evaluation is required so a monthly cost can be identified.

Residential evaluations are typically less expensive than a full appraisal and are less extensive.

Commercial evaluations are recommended if your loan amount is less than $250,000 or your collateral business loan is for $1 million or less.

At Gallant Risk & Insurance Services Inc, our team of knowledgeable insurance agents can help guide you in the right direction. Call us at (951) 368-0700 or fill out our contact form to learn more about property cost evaluation. 

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What Factors Are Considered in a Property Cost Evaluation?

Usually, property cost evaluations are interested in the cost of replacing the property, what comparable surrounding properties are worth and what potential income can be made from the property. Your property evaluation depends on the following aspects:

  • Demand
  • Utility
  • Scarcity
  • Transferability
  • Social and economic trends in the general area
  • Governmental and environmental regulations
  • How much time will be spent building the structure
  • How many materials will be invested into the property (construction, labor, improvements, etc.)
  • Value of the land

Different Approaches

Your evaluation may consist of one of these various methods:

  • The replacement cost method, which calculates the reconstruction costs of your property, including materials, depreciation and the cost of labor.
  • The sales comparison method, which evaluates recent prices of similar commercial property sales and compares them to your property.
  • Income capitalization, which is a method that estimates the value of a commercial property by assessing any future net profit for the property.

Calculating the Value

Once the necessary components listed above are gathered, an estimate is made on the property. Any approximated depreciation of the property value is deducted from the construction costs and the land value is added to the cost of building the structure.

This calculation process provides a more accurate estimate of the property value and market value of your property.

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Your Insurance Policy

Your property cost evaluation is more extensive than the worth of a property; this process is designed to combine many different elements to determine a fair and accurate value of the property based on the information provided.

Once the property cost evaluation concludes, an insurance policy can be provided for your business or residential property with a more accurate estimate by taking into account the current value and future increases or decreases in value or income for the property.

What Are the Benefits of Property Cost Evaluation?

Property cost evaluations are compliant with statewide regulations and standards, and most agents are qualified to perform them. A Commercial Quality Assurance Analyst (CQAA) carefully reviews evaluations to ensure compliance and quality in each case.

Depending on your budget and the property in question, you could benefit from a property cost evaluation by determining the market value of your property and qualifying for appropriate insurance coverage.

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