Why did my insurance company appraise my home at a value lower than market value?
UPDATED: February 20, 2013
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The main reason that an insurance company appraisal differs from a market value appraisal is because they look at two different things. The appraisal by the insurance company is focusing on assessing the replacement value of your home--and only your home or garage. This figure doesn't refer to the fair market value for your home or how much you could sell it for, it refers to how much the insurance company will pay in the event that your home is destroyed. The insurance company usually agrees to pay a figure comparable to the appraisal, plus an additional 15 to 25 percent to cover incidentals.
When you have your home appraised and buy home insurance, you are buying insurance in case your house or possessions are destroyed. The value of the lot and land itself is thus not relevant because you are not going to need to replace your land in the event you make an insurance claim. Even if your home is destroyed, by fire for example, the land will still be there for you to build on.
If you have your home appraised for another purpose, such as to determine market value, then the appraisal is based on both the worth of the home and the land. A market value appraisal looks at the market value of your entire property, taking into account the amount of land, the number of buildings, and the size of your home to determine the amount your property would sell for if you put it on the real estate market.
The two different perspectives on the worth of your property can alter the end figure of the appraisal significantly, and may leave you second guessing your insurance company appraisal.
If you are unhappy with the appraisal or suspect your insurance company is underestimating the worth of your home, you may want to have an independent appraiser give you a second opinion. It also might be beneficial to consult an attorney familiar with the appraisal process.