Bare walls vs all-in: the condo master coverage decision explained

When a board asks whether the master policy covers "the inside of the units," the honest answer is that it depends entirely on one line in the policy: the valuation basis. That single choice decides who insures the drywall, the cabinets, the flooring, and every upgrade an owner ever made, and it decides where a unit owner's own HO-6 policy has to pick up the slack. Get the basis wrong in the governing documents, and you create either a double-insured overlap that wastes premium or an uncovered gap that surfaces at exactly the wrong moment, mid-claim.

Here is how the three common structures actually work, who is responsible for owner improvements under each, and why lenders lean hard toward the broadest one.

The three valuation bases, plainly

The valuation basis describes how far the master policy reaches into an individual unit. There are three positions on the spectrum.

• Bare walls (also "walls-in" or "studs-out"). The master policy covers the building structure and common elements but stops at the unfinished interior surfaces of each unit. Think of it as insuring the box: framing, subfloor, unfinished ceilings, exterior walls, roof, and the systems serving the whole building. Everything inside the perimeter walls, the drywall's finished surface, cabinets, countertops, flooring, fixtures, and appliances, belongs to the unit owner to insure.
• Single-entity (sometimes "original specifications"). The master policy covers the building plus the unit interiors as originally built or as reflected in the current standard for the building, but not owner-made betterments and improvements. If every unit shipped from the developer with builder-grade carpet and laminate counters, single-entity restores to that standard after a loss. The granite an owner installed later is on the owner. This is the middle ground, and it is the source of the most argument at claim time because someone has to prove what "original" was. Our explainer on single-entity coverage walks through how adjusters actually draw that line.
• All-in (also "all-inclusive" or "single-entity including betterments"). The master policy covers the building, the unit interiors, and the improvements and betterments made by owners over time. The upgraded kitchen is covered by the association's policy regardless of who paid for it. This is the broadest reach and the cleanest at claim time, because the adjuster does not have to litigate which fixtures were factory and which were owner-added.

The critical point boards miss: the valuation basis is usually dictated by the declarations in the governing documents, not freely chosen by the board each year. The bylaws or CC&Rs typically define the "insurable property" the association must cover, and the master policy is supposed to match that definition. When the policy and the declaration disagree, you have a latent gap that nobody notices until a loss.

Who insures betterments under each basis

Betterments and improvements, the upgrades an owner installs after purchase, are the fault line. Track where they land:

1. Bare walls: the owner insures all interior finishes and all betterments through their HO-6. The association's policy never touches the inside.
2. Single-entity: the association insures interiors to the original or standard specification; the owner insures the delta between standard and their upgrades through the HO-6 "building property" or "improvements and betterments" coverage.
3. All-in: the association insures interiors including betterments. The owner's HO-6 building coverage shrinks to a backstop, though it is still needed for the master policy deductible and for anything the master excludes.

This is why the HO-6 is not optional under any of the three structures. Even under all-in, the unit owner still needs an HO-6 for four things the master policy does not reach: personal property (furniture, clothing, electronics), personal liability, loss of use if the unit becomes uninhabitable, and, importantly, loss assessment coverage to absorb their share of a master-policy deductible. Master-policy deductibles on larger habitational risks commonly run in the tens of thousands of dollars, and on wind or named-storm perils they are often a percentage of the insured value rather than a flat figure. That deductible gets passed to owners by assessment, and the HO-6 loss assessment endorsement is what stands between an owner and a surprise bill.

Why lenders prefer all-in and replacement cost

Two separate requirements get conflated here, so keep them distinct. One is the valuation basis (how far into the unit the policy reaches). The other is the valuation method (replacement cost versus actual cash value). Lenders care about both.

On the method, the Fannie Mae Selling Guide, in section B7-3, requires the master property policy to insure 100 percent of the replacement cost of the project improvements for a loan to be warrantable. Replacement cost rebuilds without deducting depreciation. Actual cash value subtracts depreciation, which on an older building can gut the recovery. A policy written on actual cash value fails the lender review regardless of how broad its valuation basis is.

On the basis, lenders and their reviewers strongly favor all-in coverage because it removes ambiguity about who rebuilds the interior after a covered loss. When the master policy covers unit interiors including betterments, the collateral, the unit securing the loan, gets restored to a livable, sellable condition by a single policy without a coverage argument between the association and the owner. Bare-walls does not automatically disqualify a project, but it puts more of the interior restoration on the individual borrower's HO-6, and reviewers scrutinize whether that HO-6 requirement is actually enforced in the governing documents. All-in is simply the path of least resistance through warrantability review.

How this plays out in practice

A worked example makes the stakes concrete. A pipe bursts in an upstairs unit and floods the kitchen below. Under bare-walls, the association's policy repairs any structural damage inside the walls, and the downstairs owner's HO-6 pays to replace the ruined cabinets, flooring, and drywall finish. Under all-in, the association's policy handles the whole interior restoration, and the owner's HO-6 mainly absorbs the master deductible via loss assessment plus their damaged personal property. Same loss, very different allocation of who files, who pays the deductible, and whose premium history takes the hit.

The failure mode to guard against is a mismatch. If the declaration says all-in but the master policy was quietly placed on a bare-walls form to save premium, every owner is underinsured on their interior and does not know it, because they read the declaration and assumed they were covered. The reverse mismatch, a declaration calling for bare-walls with an all-in policy, wastes premium on coverage the association was never obligated to carry and that owners are also insuring through their HO-6s.

A few state frameworks push toward the broader end. Several statutes require the association to insure the units themselves, not just common elements, which effectively mandates single-entity or all-in for interiors. Boards should confirm what their state's condominium act requires before assuming bare-walls is even permissible, because the statute can override a narrower declaration.

The practical takeaway

Before a renewal, do three things. Read the insurance article of the declaration and note the exact valuation basis it requires. Pull the master policy declarations page and confirm the basis and the valuation method (it must read replacement cost for lender purposes). Then confirm the two match each other and match state law. Where they diverge, fix the policy to the declaration, or amend the declaration deliberately, but never leave them in silent conflict. The valuation basis is the single most consequential coverage decision in a condo program, and it is also the one most likely to be set once and never checked again.