What “Agreed value” means in real estate
Agreed value is an insurance valuation method where the insurer and property owner set a fixed value for real estate (or specific property) at the start of a policy. If the property is totally lost or destroyed, the insurer pays that pre-agreed amount rather than a market or depreciated value, giving both parties certainty about claim outcomes.
Key concept
- Fixed upfront value: The value is agreed when the policy begins and serves as the basis for any total-loss settlement.
- Avoids depreciation disputes: Payments are not reduced for wear, depreciation, or short-term market swings.
- Waives coinsurance penalties: Agreed value typically removes standard coinsurance requirements that can otherwise reduce claim payments for underinsurance.
Where it’s used in real estate and insurance
- Commercial property insurance: Common for unique facilities, specialized equipment, or properties in volatile construction-cost markets. It helps businesses avoid underinsurance when replacement costs are hard to estimate.
- Homeowner and landlord insurance: Useful when home values fluctuate or when improvements aren’t reflected in market value; landlord policies can also include lost rental income in an agreed value settlement.
- Vehicle insurance (analogy): Owners of classic or custom cars often use agreed value policies so a total-loss payout equals the pre-agreed price, not the current market price.
Real-world examples
- A Brooklyn manufacturing facility with custom machinery selects agreed value coverage so a claim will pay a pre-determined sum rather than a depreciated replacement figure.
- A Midtown Manhattan restaurant lists a $1.2M agreed value and updates the statement of values annually as local construction costs rise, preventing underinsurance as costs climb.
- A homeowner in a fluctuating market chooses agreed value to guarantee full payout on major damage even if market prices fall at claim time.
- A classic-car owner agrees on a set value with the insurer so a total loss pays that agreed amount regardless of short-term collector-market shifts.
Statement of Values (SOV): Why it matters
To keep agreed value protection valid, insurers usually require an accurate, regularly updated Statement of Values (SOV). The SOV documents replacement costs or the agreed amounts for insured items. Failing to update the SOV can allow the insurer to revert to standard valuation rules and apply coinsurance, which could reduce claim payouts.
Benefits
- Claim certainty and simpler settlements.
- Protection from underinsurance penalties tied to coinsurance clauses.
- Best for unique, specialized, or hard-to-value properties.
- Especially helpful in markets with rapidly changing replacement or construction costs.
Drawbacks
- Higher premiums, since insurers assume more risk.
- Requires an accurate initial valuation and periodic updates.
- Not always cost-effective if policy budgets are tight or depreciation risk is acceptable.
When to consider agreed value
Consider agreed value when your property is difficult to value, includes custom or irreplaceable elements, sits in a volatile construction-cost market, or when you need certainty for full-loss or lost-income exposure. Work with a broker or appraiser to set the agreed amount and commit to timely SOV updates to maintain full protection.
Bottom line: Agreed value in real estate insurance locks in a pre-agreed payout for total losses, trading higher premium costs for clarity and protection against market fluctuations and coinsurance penalties.
