Fair Market Value
It is imperative that, when applying depreciation to determine actual cash value, that the adjuster include all reasonable costs and depreciate those costs. Taking out the “profit and overhead” in a contractor’s bid bears no relation to the determination of actual cash value or the true profit or overhead of the contractor. The “traditional” calculation of profit and overhead is 10% of the total bid for profit and 10% for overhead. In reality, profit and overhead is usually incorporated in the unit costs in the contractor’s bid and the 20% is a bonus on top of the profit and overhead built into the basic unit costs. Once this fact is recognized, the calculation of actual cash value by use of replacement cost less physical depreciation becomes part of a total bid.
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