Determining the Actual Cash Value (ACV) of a Property Claim

Actual Cash Value (ACV) is the cost of replacing or fixing damage to your property, minus the depreciation, or decrease in value due to age, use, etc.  There are three ways to calculate ACV: fair market value, repair/replacement cost less depreciation, and the broad evidence rule. By learning these methods to calculating ACV, you will understand how public insurance adjusters handle property insurance claims.

What Is ACV?

The ACV of a property is essentially the value of the property at the time of the loss, taking into account depreciation. This is different from the replacement cost, which is the cost to rebuild or repair the property using materials of similar quality and value.

 Methods to Determine ACV

There are several methods that can be used to determine the ACV of a property, including the cost approach, the sales comparison approach, and the income approach. The cost approach involves estimating the cost to rebuild the property, subtracting any physical depreciation, and adding any functional depreciation. The sales comparison approach involves comparing the subject property to similar properties that have recently sold in the same area. The income approach involves estimating the property’s potential income and discounting it back to present value.

Broad Evidence Rule

It’s important to note that the Broad Evidence Rule considers relevant evidence in the evaluation process that could influence the ACV. Not only could this include the methods mentioned above but also market data and other relevant information pertaining to the property.

For example, if the property being evaluated has been updated with a new roof or new appliances, this is taken into consideration through the Broad Evidence Rule to determine a “more accurate” ACV. If the neighborhood has increase in value, this is another thing to take into consideration.

The Broad Evidence Rule is not used in every state, however. For instance, Maine is the only state in New England that does not use it as an option to determine ACV.

Because the Broad Evidence Rule states that everything contributes to the value of a property when determining ACV, it may not provide the most accurate evaluation for every case.

The Changing Value of a Property

When it comes to determining the ACV of a property, it’s important to be thorough and consider all relevant factors. This include the condition of the property at the time of the loss, any improvements or updates that have been made, the location of the property, and the current market conditions.  

One key factor to consider is the condition of the property at the time of the loss. If the property was in poor condition or in need of repairs before the loss occurred, this could affect the ACV. On the other hand, if the property was well-maintained and in good condition, this could increase the ACV. Another important factor is any improvements or updates that have been made to the property. These could include things like a new roof, a new appliance, or a renovated bathroom. These improvements can increase the value of a property, and therefore should be considered when determining the ACV.