Insuring a Non-conforming Real Estate Use

Jul 6, 2015

  1. jerome3

    jerome3 New Member

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    Good morning. I am a real estate appraiser.

    I have a question that I'm hopeful one of you can answer. I'm currently appraising a residential triplex. It consists of three rental units - of good quality and good condition. It was built in 1990 when the local city zoning allowed this use. In 2006, the city changed the zoning from multi-family to R-1 - single family. It is now considered "Legal, non-conforming" - meaning it can remain as a legal use, and even be repaired if it is materially damaged, EXCEPT if it is damaged by more than 50% of its replacement cost immediately prior to the damage. If damaged beyond 50%, it can only be replaced with a single family residence....!

    My question is: If there is damage exceeding 50% of the replacement value, how can the owner recover the fair market value of the triplex as if valued just prior to the damage? I say fair market value as opposed to replacement cost because replacement cost does not include the land. If he were to lose the entire structure, even if insurance paid for the replacment cost of the structure, he couldn't rebuild it. Furthermore, he could only sell the lot for the value of a single family lot as it would no longer have multi-family lot value.

    This is a perplexing situation and I'm wondering how insurance can protect an owner of such a property that is caught in a "downzoning" situation.

    Thanks for any insight you can offer..!!

    jerome 3

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