How I wanna be a PP Pro
Join Date: Oct 2012
Thanked 1,277 Times in 562 Posts
Some states regulate the % of payout to 1/3, 1/3/, 1/3. We are the 3rd,3rd,3rd and then 100% of RCV with the Service Company taking their 20% discount ONLY off the RCV payment.
REMEMBER YOU are the General Contractor when doing a rehab and MOST P&P contractors are not knowledgable on Insurance Rehabs....There are 2 forms of payment--ACV (Actual Cash Value) and RCV (Replacement Cash Value). The Service Companies FEAST on this ignorance.
For those not experienced here is an example.
Loss is $100,000 in Replacement Value. Insurance Company will only pay approx $60,000 (Rep Value MINUS the depreciation-normally 40%--this is the ACV amount).
The General Contractor received advances of 1/3rd of the $60,000 to begin project($20,000 advance)--another 1/3rd when the project is 50% completed (another $20,000 advance). The General Contractor only gets financing on 2/3rd of the ACV amount on the project until the rebuild is 100% COMPLETED.
NOW the General Contractor is entitled to $100,000 but the Insurance Company/Service Company will only advance $40,000 so YES you have to finance the project from the 50% point to the 100% completion finals.
HERE is where the P&P Contractors are getting screwed::::::: The Service Company will payout the final 1/3rd payment for $20,000 for a grand total of $60,000 upon final completion. There is still another $40,000 on the table that Service Companies are keeping in their pocket (Difference between ACV ($60,000) and the RCV ($100,000)...)
This is also the reason MOST P&P Contractors are always complaining about not making any $$ on Ins. Rebuilds!!! They leave the $$ on the Table not getting payment on the Replacement Cost.
NOW we know the Service Companies need to make some $$ so we contract where we payout their discount on the RCV monies. Example here would be 20% discount on the $40,000 RCV amount or $8,000 discount. This means the General Contractor puts $92,000 in their pocket for the project. In simple math this equates to an 8% discount which we can absorb in our P&O as a cost of doing business.
If the P&P Contractor is not KNOWLEDGABLE on doing rebuilds and how payments actually work then you are on a fasttrack to going broke real fast.
In fact some Service Companies are requiring Performance Bonds in order to award the bid approval---REASON is they KNOW that the low amount that MOST P&P General Contractors accept may NOT cover the expense of the rebuild and the P&P Contractor QUITS due to lack of funds so the Service Company can now go after the Performance Bond to pay for the rest of the rebuild. Its rigged unless YOU know what you are doing.
There are companies out there that can estimate and bid projects for Insurance Rehabs for any General Contractor. They normally charge, depending on size, $800-$2000 to complete. Problem for the P&P Contractor is there is no guarantee that the BANK is even going to REHAB a home or take the ACV payment and sell it "as is".
Remember all those bids you guys/gals do?.. The bank turns in an insurance claim and gets the ACV monies. They don't need to repair the home--but they won't get the RCV! They sell it as is and pocket all that MONEY you gave them for doing the estimate. They not financially hurting!
What a screwed up business!!!!!