Wednesday, October 31, 2012

After Hurricane Sandy: Difference between RCV and ACV Insurance

RCV vs. ACV Property Insurance

If and when it's time to file an insurance claim for property damage as a result of Hurricane Sandy, or any other type of casualty, it is important to know whether you obtained Replacement Cost Value ("RCV") or Actual Cash Value ("ACV") from your insurance carrier.

What Is The Difference Between RCV and ACV?

The short answer to the question is...depreciation.  The best way to explain the difference is by giving the following example:

Hypothetical Assumptions:
- You paid $10,000 for a roof that was supposed to last ten (10) years ("Estimated Useful Life")
- Throughout the Estimated Useful Life of the roof, the estimated value of the roof decreases as follows:

Year 1: $10,000
Year 2: $9,000
Year 3: $8,000
Year 4: $7,000
Year 5: $6,000
Year 6: $5,000
Year 7: $4,000
Year 8: $3,000
Year 9: $2,000
Year 10+: $1,000

The "What If":
Using the above hypothetical assumptions, if Hurricane Sandy or any other casualty damaged your roof, the Replacement Cost Value (RCV) and Actual Cash Value (ACV) would result in the following depending on the time it happened within the estimated useful life of the roof...

Year Depreciated
of Roof     RCV - Value = ACV
Year 1 $10,000 $0 $10,000
Year 2 $10,000 $1,000 $9,000
Year 3 $10,000 $2,000 $8,000
Year 4 $10,000 $3,000 $7,000
Year 5 $10,000 $4,000 $6,000
Year 6 $10,000 $5,000 $5,000
Year 7 $10,000 $6,000 $4,000
Year 8 $10,000 $7,000 $3,000
Year 9 $10,000 $8,000 $2,000
Year 10 $10,000 $9,000 $1,000

Problems with Actual Cost Value (ACV)

Using the hypothetical above, if your roof was 8 years old at the time Hurricane Sandy damaged your property, the insurance company would only pay the $3,000 ACV amount towards replacing your roof.

To make matters worse, when it comes time to find a roofer to repair or replace your roof, the cost for a new roof will most likely exceed $10,000 due to limited supply of roofing materials, and increased demand.  While you may have thought you were protected by obtaining sufficient insurance for a $10,000 roof, by only receiving the Actual Cash Value, less any insurance deductible and other expenses, you may find yourself significantly under-insured.

Benefits of Replacement Cost Value (RCV)

Although the above hypothetical assumes the cost of a new roof is $10,000, the costs for replacing roofs, appliances, equipment, etc. can rapidly inflate as a result of the increased demand and limited supply of the needed items.  By having Replacement Cost Value, the insurance company needs to determine the cost to replace the roof at the time the insurance claim is made (i.e., post Hurricane Sandy).  Thus, even if it is well documented that you paid $10,000 for the original roof, if a new roof post Hurricane Sandy costs $13,000, then the true RCV should be $13,000.

Don't Get Tricked Into Renting a Haunted House

   from all of us at

Sharpe Properties

Come visit to see photos and learn more about our properties before you get tricked into renting someone else's haunted property.
Sharpe Properties
1060 East 33rd Street
Hialeah, Florida 33013
Phone: (305) 693-3500

Wednesday, October 24, 2012

Energy Efficient Roofing System Makeover

Roofing Systems Do Not Last Forever
The roof at the Miller Heights Shopping Center lived a very long life, and weathered several hurricanes and fire damage throughout its usefulness. Although the life of a commercial-grade roof typically exceeds those of residential roofs, the estimated life expectancy of the roof at the Miller Heights Shopping Center was quickly coming to its end.

In early 2012, Sharpe Properties, as the property management company, decided it was time to give the Miller Heights Shopping Center a major makeover, which included a roof replacement and significant upgrades and changes to the building's facade and parking lot.

Your Roof Will Love You Back
shopping center shows its love of a new roof
Heart-shaped tar paper appears along the
rear side of the shopping center's mansard
To startup the makeover process, the shopping center ripped off the old roofing system, including a significant amount of the decking.  Once the new roofing system was in place, tar paper was installed throughout the flat roof as well as the back part of the building's mansard.  As you can see from the photo shown, the tar paper running along the real portion of the building's mansard mysteriously developed a lovely heart for all to see.

Regardless of whether the heart appeared naturally or not, many are loving the new roof.  Each tenant at the shopping center no longer has to worry about or deal with roof leaks.  Sharpe Properties, as the retail center's property management company, no longer has to fear the rainy season.

Additional Benefits of Upgrading Commercial Roofs
The costs involved with replacing a commercial roofing system can be expensive, giving the local economy and construction industry a much needed boost.  However, over the long-run, it will also lower utility bills at the shopping center.  During the process of removing the old roof, and installing a new and improved commercial-grade roofing system, significant amounts of insulation were added underneath the roofing system.  With the extra amount of insulation added to the commercial property, each of the tenants' air conditioning units will become more energy efficient.  Consequently, during the long hot Summer season in South Florida, many of the tenants will experience reductions in their electric bills. 

Tuesday, October 16, 2012

Amendment 4: Real estate tax reform, but at what cost?

Amendment 4: Real estate tax reform, but at what cost?

Daily Business Review
October 16, 2012
Barry Sharpe
Barry Sharpe

Barry Sharpe
Barry Sharpe
Barry Sharpe, a commercial property owner as well as a tax appeal agent, would be impacted in multiple ways if Florida voters approved tax reform measure Amendment 4.
Sharpe could see his business of representing property owners disputing their tax bill take a hit. Many clients likely would see their taxes decline without his help.
He also worries the measure would counter reasons for property owners like him to upgrade their assets, despite a potential tax savings from a lower limit on assessment increases.
"The whole intent of the amendment is for people to have houses," Sharpe said. "I think [the Legislature] made a mistake doing this cap for commercial properties. ... Doing improvements triggers a new assessment and a new tax you have to pay."
If the amendment passes with the required 60 percent vote, the current 10 percent cap on tax assessments for non-homesteaded properties would be slashed to 5 percent starting on Jan. 1.
Also, first-time home buyers would be eligible for an additional homestead exemption that would expire after five years.
A third element, dubbed by some the "recapture" provision, would give the Florida Legislature the authority to pass a law preventing assessment increases for certain properties if the market value (also called just value) declines in a given year.
Early voting begins on Oct. 27.

Plenty of Attention

Of the 12 proposed constitutional amendments on the Nov. 6 ballot, Amendment 4 is getting the most attention for its potential impact on the state's real estate market and damage on municipal government revenues.
During a "webinar" presentation last week explaining its opposition to the amendment, the Florida League of Cities cited an estimate from the state's Office of Economic and Demographic Research that non-school taxing authorities would lose $1.7 billion in tax revenue over the next four years if Amendment 4 passes.
Proponents like real estate industry trade group Florida Realtors have raised millions of dollars in support of the amendment. They say the measure would provide several much-needed fixes to Florida's flawed property tax system.
The 1992 passage of the Save Our Homes Act put a 3 percent cap on assessment increases for homesteaded properties. Proponents of Amendment 4 say Save Our Homes was the precursor to problems homeowners had during the real estate boom. Property values were soaring, but many owners could not cash in because the Save Our Homes' tax savings could not be transferred to another property at the time.
"People were feeling like they were locked in their homes," according to Florida Realtors lobbyist Trey Price.
That issue was addressed four years ago with the passage of Amendment 1. That amendment included a "portability" component that allowed homeowners to transfer their tax benefit to new primary residences.
In addition to the portability component, Amendment 1 created the 10 percent cap for non-homesteaded properties.
"A huge amount of the taxable burden in Florida shifted to non-homesteaded property" during the boom, Price said.
"We believe this is significant reform or we wouldn't push it."
Amendment 4 opponents like the League of Cities agree the state needs extensive tax reform, but say Amendment 4 "exacerbates the inequities" within the existing system.
"Save Our Homes was a noble tax policy, as you don't want to tax people out of their homes," said League of Cities lobbyist Amber Hughes during last week's webinar. But Save Our Homes had "unintended consequences" and Amendment 4 would have its own adverse impact, she said.


Amendment 4 includes "a couple of things that are user-friendly," according to investor and tax appeal agent Sharpe.
The Legislature would be able to ease the burdensome spread between a property's assessed and true market value, he said.
"When values go down, the county can still increase assessments to play catch-up," Sharpe said. "This will fix that."
The additional homestead exemption for first-time buyers "will probably help Realtors and brokers" by spurring sales and potentially creating more jobs in the industry, Sharpe added.
The value of the additional exemption is equivalent to 50 percent of the property's market value at the beginning of the year the exemption is obtained. It can't exceed the median market value in the county where the property is located.
That provision is a critical change from Amendment 1, Price said.
Under Save Our Homes and Amendment 1, first-time buyers "get a raw deal," Price said. The additional homestead exemption in Amendment 4 would help correct that.
For a young couple starting a family, an additional exemption for an initial home purchase "makes a huge difference," according to longtime government affairs attorney Jorge Luis Lopez of Coral Gables.
"If we were debating this during a period where real estate was booming, we would knock our heads and ask why this is necessary," he said. "This could help stimulate additional transactions" during the current cycle, however.

Potential Pitfall

The reduction of the 10 percent assessment cap on non-homesteaded properties to 5 percent presents the biggest potential pitfall, Sharpe said.
By including the cap reduction in the amendment, state lawmakers might have unwittingly given commercial property owners like Sharpe less incentive to make renovations and tenant improvements, he said.
Commercial property owners would not want to trigger more expensive assessments that would offset any savings incurred from the 5 percent cap.
Sharpe is currently spending $1 million to extensively renovate a shopping center he owns on Miller Road and Southwest 93rd Avenue in Miami-Dade. He said he would have not have undertaken the upgrades if Amendment 4 had been in effect before the renovations were under way.
Hughes agreed during the webinar the cap reduction is the "most problematic" component of Amendment 4. The 10 percent cap is scheduled to expire in 2018. If the proposed amendment passes, the 5 percent cap would run until 2023.
It would "hurt businesses," she said.
"The idea that you can have the baker who has been there for 10 years and a new baker comes in and automatically has higher taxes is not the message we want to send to business here," Hughes said. "It's not just new businesses; expanding businesses are impacted. If someone wants to add 33 employees and move to a new facility, it might not be financially feasible to move to a larger location."
Sharpe said an important downside that has been overlooked is that municipalities would likely significantly raise millage — or tax — rates to make up for revenue shortfalls incurred from Amendment 4.
Those governments "count on a certain amount of revenue," he said. "If they don't get it from people like me who own shopping centers, who will pay for it?"

Uncertain Outcome

With a 60 percent threshold, Amendment 4 "could go both ways," according to Lopez.
The amendment is part of a lengthy ballot that includes a presidential election, numerous local races and a bevy of other constitutional amendments. Voter "fatigue" could be a major issue, Lopez said. Amendment 4 is outlined on the ballot in five paragraphs. The paragraph on the additional homestead exemption for first-time buyers alone is more than 200 words long.
From a strategic standpoint, covering so much ground in one amendment makes sense, Lopez said. Proponents can build up support among both commercial and residential property owners.
But "the counter historically has been when amendments sort of become Christmas trees," Lopez said. "If too many things are on it, that weighs it down."
Sharpe believes Amendment 4 has a "90 percent" chance of passing.
"Most people don't own commercial property," he said. "Most people will vote as a residential property owner. If I were them, I wouldn't vote against it, either."

Other Amendments

Other real estate related constitutional amendments on the Nov. 6 ballot:
• Amendment 2, which expands an additional homestead exemption for disabled veterans to include those who were not Florida residents when they began their service.
• Amendment 9, which gives an additional homestead exemption to the surviving spouse of a military veteran or first responder.
• Amendment 11, which grants an additional exemption to owners who are 65 or older if their primary property has a just value below $250,000 and they have resided on the property for at least 25 years.