Category: 50% Rule

ACV Permitting Appraisals

Actual Cash Value Appraisals

Actual Cash Value Appraisals: Federal Emergency Management Agency (FEMA) have new requirements. Participation in the National Flood Insurance Program (NFIP) requires additional responsibilities. Properties within the flood hazard zones must comply with requirements as it applies to structures. The Flood Plain Administrator and local offices are responsible for application of the NFIP/FEMA requirements.

Know Your Flood Zone

Know Your Zone ttps://www.FEMA/maps.

Structures that adhere to the current codes do not need to comply with additional requirements such as an actual cash value appraisal. Therefore, elevation by either construction or land build up may adhere to current requirements. In this case only the typical building codes impact the permitting process. Conversely, structures that do not adhere to NFIP/FEMA codes require additional efforts.

FEMA would prefer removal of non-conforming improvements. Demolition and removal of the structures can be costly to the owner. As a compromise, the NFIP adopted the 50% rule. This allows for the continued use of older buildings. The 50% rule limits the actual cost of construction at any given time, thereby reducing the risk to the NFIP.

Upon application the permit department can inform the applicant of the dollar limit of the new improvements. In some counties, the FEMA letter is on the county appraiser site as it relates to the property address. For instance, should this amount be less than needed, the property owner has the option to explore actual cash value appraisals.

Most importantly, have the report completed by a State Certified Appraiser with experience in preparing actual cash value reports for FEMA compliance. The reports developed for this specific purpose are vastly different than those developed for lending or insurance. Despite years of experience, it is imperative that the appraiser is familiar with the new requirements. For further information on actual cash value appraisals for the FEMA 50% rule contact Shari Peterman at 727-505-6706 for more info visit https://www.fema.gov

FEMA Approved Living Area Appraisal

FEMA Approved Living Area Appraisal
FEMA Approved Living Area Appraisal

Approved Living Area

Appraisers are required in the normal course of business to accurately report improvements. Inclusive in the requirements is the overall square footage.  This includes the “FEMA approved living area appraisal”. Depending on the scope of work, it is typical to include the actual measurements. Therefore, in residential appraising the living area is of particular interest as living area is often the driving source in determining market value. What constitutes living area? In valuing residential improvements legal permissibility is a requirement in establishing highest and best use. That legal permissibility then flows to the improvements. This is where the FEMA requirements come into play.

Flood Prone Areas

Identified flood prone areas, have mandatory elevation requirements. New construction codes require the land to be elevated or the living area elevated by the lower level of non living space. In many buildings this area is used for parking or storage. For instance, the homeowner elects to finish this lower area with drywall, floor cover, bathroom facilities, electrical, plumbing maybe even a kitchen or bar area. As a result, upon inspection the finishes can become an issue. Often the homeowner decides to sell and wants livable area value for these illegal improvements.

An Appraisal Issue

When the Appraiser is ordered to appraise a structure with illegal improvements an appraisal issue occurs. The illegal improvements cannot be included in the living area. The illegal improvements must be broken out on a separate line item. It is therefore up to the appraiser how these improvements are handled. I’ve seen appraisers give value for the improvements based on market reaction. Valuing the improvement is accomplished by isolating comparable sales with illegal improvements. I’ve seen appraisals where the appraiser gave no value due to the illegal use. In some cases the appraiser will give a negative value (yes minus) due to the cost to remove the illegal improvements.