Insight on Property Valuation Part #2

1. Insight on Property Valuation Part #2

2. Components of a Structure Necessary to Estimate Replacement Cost Including a discussion on how the various components contribute to Fire Hazard Identification

3. One of the Best Lessons in Construction Laguna Fires October 1993 http://www.finehomebuilding.com/how-to/articles/fire-resistant-details.aspx

5. Laguna Fires That was the scene in October 1993 after a fire storm destroyed nearly 400 homes in Laguna Beach, California. The fires started several miles inland and swept to the sea at a brisk 2 mph to 4 mph, consuming increasingly thick vegetation along the way.

6. Laguna Fires Frequently, the flames boiled 50 ft. or 60 ft. into the air, and they reached temperatures of 2,000°F or greater The most obvious question homeowners, builders, architects and code officials asked as they combed the rubble for clues was how did a precious few structures survive such an inferno while houses on all sides vanished in the fire? What they learned was a number of lessons that likely will work their way into local building codes and should help to reduce the damage of future fires.

7. Laguna Fires The home of To Bui and Doris Bender was called a "miracle house" by the Los Angeles Times because of its dramatic survival in a neighborhood almost totally devastated by the fire. Why did this trilevel structure and a few others like it survive while neighbors' homes on all sides, sometimes no more than 10 ft. or 15 ft. away, burned to the ground?

8. Laguna Fires "It's in the details," Bui insists. He knows about such details. Originally from Vietnam, he lived and worked as a structural engineer in Germany for more than 10 years. There, the predominant building materials are concrete, stone, brick and steel. "In Germany, structures are designed to last hundreds of years," he said. "I built my house to last."

9. To prevent heat buildup, this house was constructed without eave overhangs, which also eliminates soffit vents. Cornices are built up with 2x12s and 2x8s and covered with 1-in. stucco. The class-A fire-retardant roof tiles are plugged with metal bird stop.

10. Dormer Type Roof Vent Minimal Gable End Vent

11. Wooden deck surfaces are troweled over with several layers of fire-resistant coating. Undersides of all decking are stuccoed over with a 1-in. layer of cement. The glassed-in deck rails are further protection against fire. The owner of this Laguna Beach house stuccoed the undersides of all wooden deck surfaces to a maximum thickness of about 1 in., virtually eliminating any exposed wood.

12. Types of Basic Building Construction

13. Tilt-Up • Tilt up or tilt-slab is a type of building, and a construction technique using concrete. The process resembles barn raising specifically and wood platform framing generally. It is cost-effective for low buildings. • Wikepedia.com

14. Cinderblock • It is block • Could be used in the foundation of the home • It is fire resistive

15. Wood Frame • Exterior wall of wood or other combustible construction, including wood-iron clad, stucco on wood or plaster on combustible supports. Also aluminum or plaster siding over frame. • Most popular • Covered with stucco so more fire resistive than siding • A lot of insurance companies do not want to write this • Fire zones define type of building construction

16. Brick and Masonry • Masonry • Exterior wall of wood or other combustible construction, including wood-iron clad, stucco on wood or plaster on combustible supports • Masonry Veneer—Exterior walls of combustible construction veneered with brick or stone • More common in commercial structures however common in East • EQ standards make it very expensive

17. Metal/Frame • More in commercial construction and additions to existing structures like garages, barns • Depending on what zones will determine if it is allowable because it can melt and burn especially in a wildland fire. • Metal products when exposed to heat can burn and melt

18. Superior Construction • Non-Combustible—Exterior walls and floors and roof constructed of and supported by metal or other non-combustible materials • Masonry Non-Combustible— Exterior walls constructed of masonry materials and floors and roof of metal or other non-combustible materials • Fire Resistive— Exterior walls and floors and roof constructed of masonry or other fire resistive materials

19. Types of Foundations • Determining the types of foundations is very important for purposes of loss settlement and determination of value • If a foundation is cracked due to excessive heat, for example in a fire, then the loss is considered a constructive total loss and the foundation must be replaced • Often times the foundation may not be up to code such as in the example of the Oakland Fires

20. Types of Foundations • Type of Foundation • Depending on when and where a house was built, the foundation may be made of stone, brick, preservative-treated lumber, concrete block, or poured concrete. By far the most common material for foundations is concrete • There are three types of conventional concrete foundations: poured concrete, concrete block, and post-and-pier. Size and acceptable types are regulated by building codes

21. Foundations and the Homeowners To determine the amount of insurance required to equal 80% of the full replacement cost of the building immediately before the loss, do not include the value of: (1)Excavations, footings, foundations, piers, or any other structures or devices that support all or part of the building, which are below the undersurface of the lowest basement floor; (2)Those supports described in (1) above which are below the surface of the ground inside the foundation walls, if there is no basement; and (3)Underground flues, pipes, wiring and drains.

22. Roofing Materials • Roofing Materials are very important in terms of fire hazard • Many older types of roofs are no longer acceptable, such as wood shack, due to their susceptibility to fire. • Example is the Laguna Fires where the roofs caught on fire and created explosions that was a major cause in spreading the loss to other homes.

23. Roofing Materials • Roofing materials can be a significant cost factor in replacement of homes • Shingles—Asphalt, Shingles Architectural • Wood Shake, Wood Victorian Scallop • Tile—Clay Concrete • Tar & Gravel • Slate • Tin • Cooper • Foam

24. That’s a roof?

25. That’s a roof?

26. More than a roof—sunbathing!

27. Siding Materials • Stucco • Stone Veneer • Cement Fiber • Wood Clapboard • Brick Veneer • Cedar Shingle Siding • Engineered Wood Siding

28. Slope • The Slope on which a home is built enters into the per square footage replacement cost. • As relates slope, various schemes for rating fire hazard have been developed • Five elements chosen by many agencies are: vegetation, canopy cover, slope, aspect, and elevation • Slope and Other Fire Hazard Considerations http://grayback.com/applegate-valley/fireplan/how-freq.htm

29. Slope and Other Fire Hazard Considerations • Vegetation directly influences rate of spread, flame length, fire line intensity, heat per unit area, and other elements of concern in the suppression of wildland fire • Canopy cover and ladder fuels are closely related when it comes to hazard rating. A greater percentage of ladder fuels means a greater likelihood of a surface fire moving into the crown canopy, increasing the difficulty of suppressing the fire. An area with a thick shrub cover has a higher hazard rating than a grassy area, which has neither canopy cover nor ladder fuels

30. Slope and Other Fire Hazard Considerations • Gravity dictates that many if not most things travel downhill faster than uphill. Not so with fire, which defies gravity in obedience to other laws of physics (warmer air rises). Thus, slope is a factor in the rate of fire spread. As the slope becomes steeper, fire increases in speed. On flat terrain, the spread of fire relies more on wind.

31. Slope • Slope is graded in the following broad categories • Flat to Slight • Moderate • Steep

32. The Unexpected

33. Geographic Location of the Property • Factors previously discussed are key issues here as well. • vegetation, • canopy cover, • slope, • aspect, and • elevation

34. Oakland Fires 1991 The destructive Oakland fires were an eye-opener when it came to rebuilding costs in the Bay Area. With the steep slopes in the Oakland hills, the bill came in at $400 per square foot rather than the $100 national average. www.paloaltoonline.com

35. Materials used as relates values and fire hazard • There are checklists that are useful to help identify hazards and mitigate them such as: www.befiresmart.com/protect

36. Age of the structure or the year it was built • The age of the structure is important for valuation from a couple of aspects • Building could be substantially out of code • Building may be able to be built as it was prior to the loss • The building my be “historical” or have unique building items that must be included in Replacement Cost

37. Size and Type of Attached Garage • Garages vary in type, size, usage and construction (specialty finishes) • Often times the garage is overlooked in the overall valuation and must be considered as a separate line item

38. Additional costs associated with single or custom home • Estimators only provide basic information and “estimates” of value • Broker/Agents should always inspect a home, take pictures and do an on site evaluation for any costs associated with customization

39. San Diego Fires 2007 Oakland Fires Laguna Beach Fires

40. Effects of Catastrophes on Replacement Cost • Under Normal Situations Repair and Replace • Following a CAT loss the costs of construction can sky rocket • Cost of permits • Change in building codes • Supply and demand • Fuel Charges • Inability to replace at the same site—especially a consider in flood prone areas

41. Effects of Catastrophes on Replacement Cost • Construction labor shortages • Example is the San Jose Fires when 2300 homes were damaged. Prior to the loss the estimated costs/sq footage replacement cost for typical homes in the area were $100/sq.ft. Following the loss it was $300.00/sq. ft. because of supply and demand

42. Effects of Catastrophes on Replacement Cost • Building supply shortages • Example was Hurricane Andrew where massive amounts of lumber were sent to rebuild in the area which created a shortage and increased cost of lumber on a national basis • “cement supplies will continue to be a problem for hurricane-wracked southern states and fast-growing areas in the southwest,” unless the Commerce Department alleviates cement shortages by suspending the duty on Mexican cement. (http://rermag.com/Constrcution_Costs_112105/

43. Effects of Catastrophes on Replacement Cost • Transportation delays can result in increased construction time and cost. Example is the Oklahoma Bridge collapse that forced trucks to find alternative routes that took longer, cost more fuel and accordingly increased costs to the end useer • Permit restrictions can result in increased costs, sometimes referred to as demand surge and delays in rebuilding

44. Review of Significant Endorsements • Guaranteed Replacement Cost • Extended Replacement Cost • Inflation Guard • Building Ordinance

45. Guaranteed Replacement Cost • The limit of insurance is suspended on the described property. • In the event of a total loss, the recovery is the actual amount of the loss. • In the event of a partial loss, the policy pays replacement cost or ACV if the property is not replaced.

46. Guaranteed Replacement Cost • Many homeowner policies prior to 1991 provided this enhanced coverage. • In the aftermath of a catastrophic fire in the Berkeley Hills above Oakland, most homeowner policies revised this provision.

47. CIC Code as relates Guaranteed Replacement Cost 10102 • Significant misuse of the “Guaranteed Replacement Cost Endorsement” and Extended Replacement Costs have resulted in law suits following losses. • Specifically the term Guaranteed was misused leading the insured to believe that the full cost of replacement was “guaranteed” without restriction. According the code makes specific reference to this.

48. Guaranteed Replacement Cost Section 10102 of CIC • e) No policy of residential property insurance may be initially issued on and after January 1, 1993, as guaranteed replacement cost coverage if it contains any maximum limitation of coverage based on any set dollar limits, percentage amounts, construction cost limits, indexing, or any other preset maximum limitation for covered damage to the insured dwelling. The limitations referred to in this section are solely applicable to dwelling structure coverages. Endorsements covering additional risks to the insurer's dwelling structure coverage may have internal limits as long as those endorsements are not called guaranteed replacement cost coverage.

49. Extended and Guaranteed • Misuse of Extended Replacement Cost AND Guaranteed Replacement Cost does NOT remove the obligation to insure to value and it is inappropriate and harmful to an insured to underinsure their property and rely on either of these endorsements as remedies.

50. Extended Replacement Cost • Most homeowner policies today provide coverage for the dwelling at an increased percentage of the specified amount on the policy. • This provision has in the past been mis-used in setting value