After the initial scare, the property damage, and the inspection by the restoration company that you chose, you are left with an estimate. With so many pages filled with technical terms, you probably have some doubts.
This is completely normal. Unless you had some previous experience with the industry, likely, you wouldn’t get all the codes, numbers, and all that cryptic stuff you can find in your average restoration estimate.
But here's the truth: your estimate isn't designed to confuse you (even though, sometimes it looks like it!). It's written in the standardized "language" used by insurance companies and restoration professionals to ensure fair, verifiable pricing.
At Restore-It, we believe in total transparency. As a restoration company, we will pull back the curtain on how estimates are built and explain seven key details you should know about. By the end, you will understand exactly what you're looking at. We want you to feel confident that your claim is accurate, fair, and fully explained.
1. The Xactimate "Language"
So, let's begin with the number one "culprit" of making your estimate sound so darn complicated. The name behind every line, number, and acronym in your estimate comes from an industry-standard software known as "Xactimate". This system is used by pretty much every major insurance carrier and restoration contractor in the U.S.
In a way, Xactimate is the Rosetta Stone of property insurance. It works by making sure that everyone (your contractor, your insurer, and your adjuster) is literally on the same page. Here's what to know about it:
- You're not being charged random prices. Xactimate updates monthly price lists for every ZIP code in the United States.
- Your adjuster uses the same database. That means both parties are working from the same verified, market-rate costs for materials, labor, and equipment.
So if your estimate looks complex, it's because it’s built to be standardized, auditable, and transparent.
2. Replacement Cost Value (RCV) vs. Depreciation vs. Actual Cash Value (ACV)
In your estimate, you will encounter these terms: RCV, ACV, and Depreciation. They basically determine how much money you actually receive from your insurance claim, so here is what they mean:
- RCV (Replacement Cost Value): What it costs to replace something with a new version today.
- Depreciation: This is the amount by which an item has lost value (due to age and wear).
- ACV (Actual Cash Value): The item's current "as-is" value. This means RCV minus Depreciation.
Why this matters (The Two-Check System): The first check you receive from your insurer will be for the ACV. It will likely seem as though the company is underestimating what you truly need for the repairs.
Don't panic. This is normal. Your insurer will pay you the "recoverable depreciation" (the money they held back) as a second check, but only after you have proven that you have completed the repairs (by providing our final invoice). This "two-check system" is designed to ensure that you use the money to actually fix your house.
3. "O&P" (Overhead & Profit)
Toward the bottom of your estimate, you will find a line item for "O&P," usually listed as 10% for Overhead and 10% for Profit.
Of course, this somewhat charge can make more than one homeowner suspect something strange is going on with their estimate. However, this could not be farther from the truth: this is a transparent, industry-standard allowance used for complex restoration projects. Let's take a closer look at what this means:
- Overhead: This covers the costs of running a professional, licensed, and insured business. This includes items such as office rent, utilities, project managers, insurance, and a 24/7 emergency response, ensuring your restoration experts are ready to answer the phone at 3 AM.
- Profit: This is what allows a company to invest in new equipment, train its technicians, and grow, so your restoration company is here to serve you and the community next year.
It's worth noting that this 20% (or "10 and 10") is the industry standard for complex projects involving multiple trades and significant project management. Any company that says they "don't charge O&P" is being dishonest and may simply hide these costs in other, inflated line items.
At Restore-It, we believe that transparency builds trust, while hidden fees undermine it. That's why it's so important to be honest and show it to you transparently.
4. Mitigation vs. Reconstruction and Getting "Two Bills"
This is the single most confusing part of the process for the large majority of homeowners. Your recovery happens in two distinct phases, and they are often billed and paid for separately. Let's take a look at them:
Phase 1: Mitigation (Stopping the Damage)
This is for the emergency service. This includes water extraction, boarding up windows, setting up drying equipment, and removing non-salvageable, contaminated materials. It's all about the "act of reducing the severity of the property damage".
Phase 2: Reconstruction (Rebuilding the Property)
This is for the repair work, which involves restoring your property to its pre-loss condition. As it was before the damage occurred. This includes new drywall, painting, and the installation of new flooring.
So, here is how this works. While your insurance company will likely issue separate payments for these two jobs, you will get the first one to pay for the mitigation work (that has already taken place). As the homeowner with the insurance policy, you are responsible for paying the mitigation company's invoice.
5. Cryptic Line Items (like "Cat 3", "R&R", and More)
You may review your restoration estimate and notice confusing line items, shorthand, and codes that originate from Xactimate and are industry standards. Don't worry, we will talk about the big ones.
"Category 3" (or "Cat 3")
Xactimate categorizes removal items by contamination level, not just by the source of the damage. In this case, it refers to grossly contaminated water, such as sewage. However, this doesn't end with water damage; it relates to any "contaminated" materials, including the presence of soot and smoke.
The line item for "Remove contaminated drywall (Cat 3)" is the same as the line item for "Remove contaminated drywall (Soot)." And it involves the same process (requiring PPE and special disposal) and has the same price. The restoration company is not billing you for water damage; they are using the correct, industry-approved line item for removing hazardous material.
"R&R" (Remove & Replace) vs. Material-Only
If you see in your estimate a line item like "FNC R&R" for $500 and think, "A new fence doesn't cost that much!". You are correct. "R&R" is an action code for Remove & Replace. That single line item includes all associated costs:
- The labor involved in tearing down and removing the old item.
- The cost to haul and dispose of the debris.
- The new material (the fence).
- The labor to install the new item, including all necessary fasteners, hardware, and other components.
In other words, every "R&R" line item represents a full-service replacement, not a single product or component. On the other hand, if a line item appears without an action verb (e.g., "Door lockset"), that typically represents the material cost, and a separate line item for installation labor will be nearby.
6. Code Upgrades: When “Restoring” Means Rebuilding
Generally speaking, your insurance policy will pay (the majority of) the bill to return your property to its "pre-loss" condition. In other words, any "upgrade" that you, the homeowner, may want (such as changing the flooring to a more expensive type) will be paid out-of-pocket.
However, if enough time passes and the local building codes change, then you are legally entitled to demand that your property be brought up to current code. This could mean:
- New electrical or plumbing standards
- Updated insulation
- Fire-rated drywall requirements
Although this scenario is very rare, it is possible. In fact, a few years ago, we worked on an apartment that caught fire. Given that it was an old building, all the wiring had to be redone to comply with current building standards.
These "code upgrades" appear as separate line items on your estimate. If your policy includes "Ordinance or Law" or "Code Upgrade Coverage," your insurer will pay for these costs. We strongly suggest checking this in your insurance contract and consulting with your insurance adjuster for further clarification.
7. Market Conditions: Surging Prices After Disasters
When a major community-wide disaster (like a hurricane or wildfire) happens, the demand for labor and materials skyrockets. Recognizing this, the Xactimate software allows for a "factor" for market conditions. This adjustment in the estimates keeps the estimated prices realistic as the cost increases during high-demand periods, while the entire community is rebuilding.
Reading Your Estimate with Confidence
Line items and acronyms may seem intimidating, but they are in place to ensure fairness and standardization. After reviewing this article, you should be confident in interpreting your restoration estimate. The next time you receive a restoration estimate, ask your contractor to walk you through these seven sections line by line. You deserve clear answers, and transparency is part of professional service.
If you need a professional restoration company, consider Restore-It. Our mission is to rebuild not only your property but also your peace of mind. We believe in hard work and full transparency, so you know what needs to be done, how it will be done, and what your estimate means. At our company, we believe that transparency creates trust, and that's the foundation of every successful restoration.
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