HOA and Condominium Property Valuation in Texas

Section 82.111(a)(1) permits a Texas condominium association to insure the common elements at 80 percent of replacement cost or actual cash value. Fannie Mae requires master property coverage at least equal to 100 percent of the replacement cost value of the project improvements and states that policies settling claims on an actual cash value basis are not acceptable. Both statements are true at once, and an association sitting at the statutory floor is not at the market floor.

Valuation is not a technical detail on the statement of values. It is the variable that decides whether a claim rebuilds the building and whether a buyer can get a loan on a unit in it.

Key takeaways

The statute permits either basis Eighty percent of replacement cost or actual cash value both satisfy Sec. 82.111(a)(1).
The secondary market permits only one Fannie Mae requires at least 100 percent of replacement cost value and does not accept ACV settlement.
Deductibles are capped on the lender side Maximum 5 percent of the master property coverage amount for all required perils, including combined multiple deductibles on a single occurrence.
Valuation is tested at renewal Sec. 82.111(a)(1) measures the amount as of the effective date and at each renewal date, so a valuation that was adequate three years ago may not be now.
Coinsurance compounds the gap A property coinsurance condition can reduce payment on a partial loss, not only a total loss, where the limit falls short.
The board carries the decision Undervaluation is a board decision with directors and officers implications, not merely a purchasing choice.

What is the difference between the monthly and look-back measurement methods?

Both answer the same question — which employees are full-time and therefore must be offered coverage — but they answer it on different timelines. The monthly measurement method looks at the month you are in. The look-back method looks at a period that has already closed and applies the result forward.

How does the monthly measurement method work?

The employer determines full-time status month by month, asking whether the employee had at least 130 hours of service in that calendar month. There is no advance election, no measurement period and no lock-in. The cost is volatility: an employee can move in and out of full-time status repeatedly, and each change carries an offer obligation with it.

How does the look-back measurement method work?

The employer determines an employee’s status for a future stability period based on hours of service during a preceding measurement period, with an optional administrative period between the two for enrollment processing. An employee who averaged full-time hours during the measurement period is treated as full-time for the whole stability period, regardless of hours actually worked then — and an employee who did not is treated as not full-time for that period.

Statutory floor against secondary-market requirement
	Texas Prop. Code Sec. 82.111(a)(1)	Fannie Mae B7-3-03	Practical consequence
Amount	At least 80 percent	At least 100 percent of replacement cost value of the project improvements	A 20 point gap at the floor
Valuation basis	Replacement cost or actual cash value	Replacement cost; ACV settlement not acceptable	ACV compliance under the statute is unacceptable to the lender
What is measured	Insurable common elements, and units where horizontal boundaries exist	Project improvements including common elements and residential structures	Different scopes of the same building
Maximum deductible	Commercially reasonable, as the board determines	5 percent of the master property coverage amount	No statutory ceiling, but a market ceiling
Multiple deductibles	Not addressed	Combined total for a single occurrence no greater than 5 percent	A separate wind deductible can breach the cap
When tested	Effective date and each renewal date	At loan delivery and on review	Both are recurring, not one-time
Failure consequence	Statutory non-compliance	Units in the project may not be financeable	Two different kinds of problem

Scroll the table horizontally on narrow screens.

Authoritative references

Statutes and regulations

Texas Property Code Chapter 82, Uniform Condominium Act, Sec. 82.111, Insurance — Texas Legislature · effective Current through the 89th 2nd Called Legislative Session, 2025Supports: The 80 percent property insurance requirement, the commercial general liability requirement, the horizontal boundaries rule and the improvements and betterments exclusionVerified 27 July 2026
Texas Property Code Chapter 82, Uniform Condominium Act, Sec. 82.002, Applicability — Texas Legislature · effective Current through the 89th 2nd Called Legislative Session, 2025Supports: Which condominiums Chapter 82 governs, and which of its sections reach regimes declared before 1 January 1994Verified 27 July 2026

Explanatory guidance

Selling Guide B7-3-03, Master Property Insurance Requirements for Project Developments, B7-3-03 — Fannie Mae · effective 07 February 2024Supports: The 100 percent replacement cost requirement, the unacceptability of actual cash value settlement, and the 5 percent maximum deductibleVerified 27 July 2026

Reviewed 27 July 2026 by Deon R. Williams, M.Jurs, REBC, CLCS, AIC, AINS. Next review July 2027, or sooner if the Texas Legislature amends Chapter 82 or 209 or Fannie Mae revises B7-3-03. 4J Insurance is an insurance brokerage. Nothing here interprets a specific declaration, bylaws, covenants or management agreement, and nothing here is legal advice. Your policy wording, endorsements and governing documents control. Legal interpretation belongs to the association’s counsel.

Eighty percent replacement cost and eighty percent ACV are not the same number

The statute offers a choice of valuation basis, and the two produce materially different limits on the same building. Replacement cost measures what it costs to rebuild. Actual cash value reflects depreciation. On an older building the difference can be very large — and the statute permits an association to take 80 percent of the lower of the two concepts.

Fannie Mae removes both halves of that latitude: 100 percent rather than 80, and replacement cost rather than a choice, with actual cash value settlement expressly unacceptable. The distance between the statutory floor and the market floor is therefore wider than the headline percentages suggest.

Coinsurance turns a shortfall into a penalty

Where a property policy carries a coinsurance condition, insuring below the required percentage reduces the claim payment proportionally — and it does so on partial losses, which are the overwhelming majority. An association that is underinsured does not merely run out of limit on a catastrophic loss; it can be paid less than the repair cost on a routine one. See property coinsurance in the glossary, which is a different concept from the health-plan sense of the word.

Which organization purchases this insurance?

Valuation obligations attach to the association’s property program. They are not affected by what the management company carries.

The association purchases and is responsible for the master property program and its valuation basis.
The management company insures its own operations. Its errors and omissions coverage may respond to allegations that it failed to advise on or arrange required insurance, but it does not insure the building and does not satisfy any valuation requirement.
Board members are protected through the association’s directors and officers program. A decision to insure at the statutory floor rather than the lender floor is a board decision, which is precisely why it should be documented.
Unit owners insure their improvements and betterments and carry loss assessment coverage, which is what may respond when an underinsured association assesses its members after a loss.

A certificate of insurance does not create coverage, a management agreement does not replace insurance, and contract wording does not override policy wording. 4J is an insurance brokerage and is not an appraiser; replacement cost valuation should come from a qualified source.

Related resources

Continue learning

Use a tool

Property management glossary — Master policy, common elements, loss assessment and property coinsurance, defined.

Discuss the issue

Request a Coverage Audit — Send the current statement of values, the master policy declarations and any lender correspondence. We test the limit against both floors and report the gap.

Is 80 percent of replacement cost compliant?

It satisfies Section 82.111(a)(1), which requires a total amount of at least 80 percent of the replacement cost or actual cash value of the insured property as of the effective date and at each renewal date. Whether it satisfies a lender is a separate question, and Fannie Mae requires at least 100 percent of replacement cost value.

Can we insure on an actual cash value basis?

The Texas statute permits it. Fannie Mae states that property insurance policies providing for claims to be settled on an actual cash value basis are not acceptable. If units in the project are financed through the secondary market, an ACV policy can create a financeability problem even though it complies with Texas law.

How high can our deductible be?

Section 82.111(c) permits commercially reasonable deductibles as the board determines, with no statutory ceiling. Fannie Mae caps the deductible for all required property perils at 5 percent of the master property coverage amount, and where multiple deductibles apply, the combined total for a single occurrence must be no greater than 5 percent.

A separate windstorm deductible — does that count toward the cap?

Under Fannie Mae’s requirement, yes. Where a policy carries multiple deductibles, the total amount applicable to a single occurrence must be no greater than 5 percent of the coverage amount. A modest all-perils deductible plus a percentage wind deductible can breach the cap in combination.

Who is responsible if the association is underinsured?

Responsibility for the association’s property program sits with the association and its board, which is why insuring at the statutory floor rather than the market floor is a decision worth documenting. The management company’s errors and omissions coverage addresses allegations about its own conduct, not the association’s obligations.

Does 4J determine our replacement cost?

No. 4J is an insurance brokerage, not an appraiser, and does not certify replacement cost valuations or perform reserve studies. We test the limit you carry against the requirements that apply to you and identify where the two do not meet.

An association can satisfy Texas law and still make its own units unfinanceable