What is PML in real estate?

What Does PML Mean?

In real estate, PML stands for "Probable Maximum Loss." It is a term used primarily in the context of earthquake risk assessment and refers to the estimated maximum potential loss that a building or property could suffer due to seismic activity. The PML is typically expressed as a percentage of the building's replacement value. It is an important factor for property owners, investors, insurers, and lenders, as it helps in understanding the potential financial risk associated with earthquake damage to a property.

The assessment of PML is based on various factors, including the location of the property, the type of construction, the age and condition of the building, local building codes, and the historical record of seismic activity in the area. Engineers or specialized risk assessment firms often perform these evaluations to provide a PML estimate. This information helps investors make informed decisions about purchasing, insuring, or lending against properties in areas prone to earthquakes.