By Andrew Bateman, Alera Group
One of the most important questions a Board of Directors or Community Manager can ask is simple:
Where did this property value come from?
The answer directly impacts whether your community is properly protected or financially exposed when a loss occurs. Yet many associations just renew the policy or rely on outdated estimates, assumptions, or incomplete data when determining their property coverage.
Why Accurate Property Valuation Matters
Property valuation is the foundation of your insurance program. If it is inaccurate, everything built on top of it is at risk.
- Overvalued properties lead to unnecessary premium spend
- Undervalued properties create dangerous coverage gaps
- Special assessments to unit owners
- Out-of-pocket repair costs
- Legal action against the Board for failing to secure adequate coverage
A professional appraisal conducted by a qualified engineer or appraiser is the most accurate method. This includes an on-site evaluation of construction type, materials, condition, and unique features. The final report is typically supported by a signed affidavit or engineering stamp, providing defensibility in the event of a claim.
Tools such as CoreLogic, Verisk, or Marshall & Swift use algorithms based on square footage and general assumptions. While helpful as a baseline, they do not reflect real-time conditions, upgrades, or property-specific nuances. These should never be relied on as the sole source of truth.
Local contractors may provide replacement estimates, but results can vary widely based on labor assumptions, profit margins, and material selections. These estimates can supplement, but not replace, a formal appraisal.
- Inflation and labor costs
- Catastrophic events that drive regional demand
- Changes in building codes and ordinances
- Legal defense costs may not be covered
- Management companies, as agents of the Board, may face uncovered claims
- Financial responsibility for shortfalls may fall back on the association and its members
- Obtain a professional insurance appraisal to establish a reliable replacement value
- Understand fiduciary responsibilities related to insurance decisions
- Confirm D&O coverage includes Failure to Procure Insurance protection
Underinsurance is where the real exposure lies. If a loss occurs and coverage is insufficient, the association may face:
Boards have a fiduciary duty to act in the best financial interest of the association. That includes ensuring property values are accurate, defensible, and regularly reviewed.
How Property Values Are Determined
Not all valuation methods are equal. Understanding how your replacement value was calculated is critical.
1. Insurance Appraisal (Most Reliable)
2. Software-Based Estimations
3. Contractor or Builder Estimates
Why Valuations Must Be Reviewed Annually
Property values are not static. They are influenced by:
A valuation that was accurate even two or three years ago may no longer reflect today’s rebuild cost. Annual reviews ensure your coverage keeps pace with current conditions and avoids costly surprises.
Legal Responsibility and Risk Exposure
Board members are generally protected by governing documents and state statutes, but those protections have limits.
If a claim arises due to inadequate insurance, the Board and management company may be drawn into litigation. This is where Directors & Officers (D&O) insurance becomes essential.
Coverage that includes Failure to Procure Insurance is particularly important. Without it:
Each lawsuits wording is different, so coverage is dependent on the wording. These lawsuits may not be covered at all. Even with insurance, if the property value is incorrect, the policy will not cover the gap. That financial burden remains with the association.
Three Key Actions Every Association Should Take
In addition, Boards should review key property endorsements such as Ordinance or Law coverage and Water/Sewer Backup. These directly impact how losses are paid and whether additional costs fall back on the association.
The Bottom Line
Property valuation is not a one-time exercise. It is an ongoing responsibility that requires validation, documentation, and expert input.
Accurate values create confidence in your coverage, strengthen your Board’s decision-making, and protect your community from avoidable financial risk. The question is not whether you have insurance, but whether the value behind it is correct and defensible.
About Andrew Bateman
Andrew Bateman focuses on working with condominium, townhome managers and Board of Directors for their insurance needs at the Alera Group. Andrew is a Community Insurance and risk management specialist (CIRMS) He works closely with Boards and community managers to structure coverage that aligns with real-world risks and fiduciary responsibilities. His approach combines technical expertise with practical guidance to help associations make informed, defensible insurance decisions.
