However, in researching the issue of appraised value less land cost, I can find no reference to that particular calculation in the FEMA guidelines which refers only to replacement cost value (RCV). Why is the appraised value less land cost even a consideration when there is no mention of that calculation by FEMA?
You won't find a reference to the appraised value less land value in the FEMA guidelines. That reference is from an FDIC FIL 81-2001. Link and excerpt is below. (
http://www.fdic.gov/news/news/financial/2001/fil0181a.html)
Purchase Requirements (12 C.F.R. § 339.3)
If improved real property securing a loan is located in a SFHA and flood insurance is available, then the lender must require the borrower to obtain the proper amount of flood insurance before closing the loan. The minimum required coverage is the lesser of the outstanding principal balance on the loan, or the maximum amount available from the NFIP. The amount of the insurance should not be less than the
value of the improved structure. Before FEMA update the guidelines and the agencies issued the FAQs, general practice was to take the appraised value and subtract the land value to arrive at the improved value of the structure. I believe the guidelines and FAQs were updated to address the cost over market value problem associated with inflated appraisal values and the subjective nature of market (comparable sales) valuation. To my knowledge, there is no exact calculation method to determine RCV and ACV.
David Dickinson wrote an excellent article about this on his website. Here is the link (scroll to flood insurance insurable value).
http://www.bankerscompliance.com/compliance-resources/free-downloads.htm
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