Introduction to Property Estimating
In the world of property insurance, the estimate is the primary document used to determine the financial value of a loss. Whether you are handling a small kitchen fire or a massive hurricane claim, your ability to accurately scope a loss and translate it into a professional estimate is your most critical skill as an adjuster. This article covers the fundamental components of reading and writing estimates, which is a core topic on the practice Claims Adjuster questions found in our training modules.
A property estimate is not just a list of prices; it is a legal and technical justification for the claim settlement. It must be detailed enough for a contractor to follow while remaining clear enough for a policyholder to understand. For a broader look at the licensing process, see our complete Claims Adjuster exam guide.
The Anatomy of a Line Item
Estimates are built using "line items." Each line item represents a specific task, material, or labor cost. In industry-standard software like Xactimate or Symbility, a line item is typically composed of several parts:
- Category (CAT): A three-letter code representing the trade (e.g., DRY for Drywall, RFG for Roofing).
- Selector (SEL): A code defining the specific material or task within that category (e.g., 1/2 for half-inch drywall).
- Action (ACT): Defines whether the item is being removed (R), replaced (RP), or simply repaired.
- Description: A text explanation of the work being performed.
- Quantity: The measurement of the area being worked on (SF for square feet, LF for linear feet, EA for each).
- Unit Price: The cost per unit, which includes labor, material, and equipment.
RCV vs. ACV in Estimates
| Feature | Replacement Cost Value (RCV) | Actual Cash Value (ACV) |
|---|---|---|
| Definition | Cost to replace with new material | RCV minus depreciation |
| Depreciation | Calculated but often recoverable | Applied and non-recoverable |
| Calculation | Current market price | Market price - (Age/Condition) |
| Usage | Standard for most HO-3 policies | Used for older roofs or ACV-only policies |
Overhead and Profit (O&P)
General Contractor Overhead and Profit, commonly referred to as O&P, is an additional amount added to an estimate when the complexity of the job requires a general contractor to oversee multiple trades. The industry standard is often referred to as "10 and 10," meaning 10% for overhead and 10% for profit.
Adjusters must determine if the claim meets the criteria for O&P. Generally, this is applied when there are three or more trades involved (e.g., a roofer, a painter, and a drywaller) and the scope of work requires significant coordination. Overhead covers the contractor's fixed costs (rent, utilities, insurance), while Profit is the reward for the contractor's risk and effort.
Standard Estimate Components
The Rule of Waste
When writing roofing estimates, always remember that shingles are sold by the square (100 square feet), but installation generates waste. Standard practice is to add 10% waste for gable roofs and 15% for hip roofs to account for cutting and overlapping.
Depreciation and Holdback
Writing an estimate requires an understanding of depreciation. Depreciation is the decrease in the value of property over time due to wear and tear or obsolescence. In a typical RCV policy, the adjuster calculates the full replacement cost, then subtracts depreciation to arrive at the ACV. The difference—the depreciation—is "held back" until the repairs are actually completed. This ensures the principle of indemnity is maintained and the insured does not profit from the loss.