A real estate appraisal should tell you what your property is worth. However, the value reported includes land and improvements, if any. When you remove the land value from the estimated market value, what is left is a depreciated value for the improvements. Depreciation within a real estate appraisal includes:
• physical depreciation
• functional depreciation
• economic obsolescence
When estimating Replacement Cost New for insurance purposes, if you are asking for the improvement to insured at Replacement Cost New, then the real estate appraisal value would be much too low, as it is a depreciated value. If you are asking for the improvement to be insured at Actual Cash Value, then the real estate appraised value would again be too low, as it includes physical depreciation, functional depreciation and economic obsolescence, whereas for Actual Cash Value, you only want to include physical depreciation in the equation.
If you insure based on a Real Estate Appraisal, then you will be under insured.