When you file a home insurance claim after a covered loss, your insurance company calculates the cost of damages. But you might find that you disagree with the insurance adjuster’s estimate — which is where insurance appraisals come in.
During an insurance appraisal, a professional appraiser inspects your home and calculates the replacement cost value of your property and personal belongings. This appraisal can settle disputes without litigation and help you receive a reimbursement from your home insurance company in the event of a covered claim.
Here’s what you need to know about how insurance appraisals work and why they’re important.
Here are the steps for completing an insurance appraisal:1
Invoke the appraisal clause. Your insurance policy terms include information about how to request an insurance appraisal. Often, this must be a written request.
Choose an appraiser. Find a competent appraiser who has extensive experience appraising properties similar to your own. Notify your insurance company of this appraiser within 20 days of the written demand for an appraisal.
Make sure appraisers choose an umpire. A third-party umpire settles disputes and helps make sure your appraiser and your home insurer’s appraiser act in everyone’s best interests.
Conduct the appraisal. Each party conducts its appraisal before trying to reach an agreement. If they disagree, they pass their differences on to the umpire.
Receive your decision. You’ll receive a notification either by mail or email when the umpire and appraisers have reached a final decision. The determined loss amount is binding.
If you disagree with your home insurer after a claim, you might assume it’s time to call your attorney. Luckily, most home insurance policies include an appraisal clause. Instead of filing a lawsuit, you can request an appraisal to settle the dispute.
The exact language of a typical appraisal clause varies by company. But generally, the policyholder and insurer must each find an independent appraiser within 20 days of the initial request. Then, these appraisers must agree on an umpire within a 15-day time limit.
If you and your insurance company can’t reach an agreement on the amount of loss from a covered peril, you may need an insurance appraisal. An appraisal is an alternative to a lawsuit. While not required, an appraisal is a faster, less costly way to reach a settlement after a claims dispute.
You might also request an insurance appraisal after buying, remodeling, or refinancing a home. If you have a particularly expensive home or valuable personal items, it may also be a good idea to get an appraisal. This type of appraisal is a purchase appraisal and differs from a homeowners insurance appraisal.
Appraisers have many ways to assess a home’s value. A homeowner might want to know the actual cash value, replacement cost value, agreed value, or market value of their home. These amounts have subtle differences and may affect how an appraiser inspects a home.
The replacement cost value of your home is how much it would cost to rebuild it using the same materials without accounting for depreciation in value. This means an appraiser won’t consider how the physical structure of the home has lost value from general wear and tear.3
The appraiser will also need to determine how much it’ll cost to reproduce the home using the present-day cost of materials, labor, finances, interest on any loans, taxes, and more.4
Your home’s actual cash value is the cost of replacing it minus depreciation. An appraiser assessing your home’s actual cash value will consider how wear and tear has affected its value over the years. For home insurance, your coverage limits are typically based on the replacement cost of your home, not the actual cash value.
Dry rot, decay, and damage from weather are a few examples of wear and tear. External factors like changes in the neighborhood can affect the value of your home.
The agreed value of your home is the amount you and your insurance company agreed on at the beginning of the policy term. This value doesn’t account for depreciation, as your home may lose value over the course of your policy term.
Market value considers how much your home is worth on the market given present economic conditions. For instance, an appraiser might consider the sales prices of similar homes in your area. The appraisal process to determine market value may place a greater emphasis on data collection and analysis. It’s typical for a home’s market value to be different from its replacement cost, usually higher.
A purchase appraisal happens when you’re selling or refinancing your home. This appraisal helps you correctly value your home so that you know how much to sell it for or how much a mortgage lender would be willing to offer.
An insurance appraisal differs in that it occurs during the claims process. If you and your insurance company disagree on the amount of a loss after a claim, you can request an insurance appraisal to settle the dispute.
Though both home purchase appraisals and insurance appraisals involve home inspections that measure your home’s value, the timing and purpose of the appraisals differ.
Homeowners can benefit from having a clear understanding of the insurance appraisal process and how it can help settle disputes. The following information can help answer your remaining questions about the insurance appraisal process.
An insurance appraisal assesses the cost of damage to your home in the event of a loss. An impartial appraiser will conduct an inspection of your home and evaluate relevant data to determine an accurate value.
An insurance adjuster examines a home following property damage and determines how much the insurer should pay out to the claimant. In short, the adjuster sets the initial claim. Meanwhile, appraisers assess the value of an insured property to determine the amount of loss — and it’s possible for this to conflict with the adjuster’s initial valuation.5
Home insurance policies include terms that enable policyholders or insurers to request an appraisal if both sides can’t reach an agreement on a claim. Each party must then find an appraiser. These two appraisers find a third-party umpire to help them reach a claim settlement.
An insurance company may deny an appraisal. If that happens, the case goes to an umpire. The umpire and the party they side with will reach an itemized agreement, which determines how much to award the policyholder.
A homeowners insurance appraisal is only mandatory if the policyholder or the insurance company files a written demand for one.
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