Understanding RCV, ACV, and Depreciation
Learn the key financial terms used in appraisal awards.
Every property appraisal award gets paid out in two stages, and that two-stage payment is driven entirely by three numbers: replacement cost, actual cash value, and depreciation. Get any of them wrong and the carrier either underpays the insured or has to claw money back later. Neither is a good look.
If you came to appraising from estimating or construction, this math is probably second nature. If you came from anywhere else, the terms get tangled fast. Carriers, attorneys, public adjusters, and insureds all use these words slightly differently, and the policy itself can change whether depreciation is recoverable at all. A few minutes spent locking down the definitions saves hours of back-and-forth on every case.
This article is the cheat sheet. Bookmark it. When an insured asks "why am I only getting $7,500 when the roof costs $10,000," you can send them here instead of explaining it from scratch every time.
Key Terms
| Term | Definition | Example |
|---|---|---|
| RCV (Replacement Cost Value) | Cost to replace damaged item with new equivalent | $10,000 for new roof |
| ACV (Actual Cash Value) | RCV minus depreciation | $7,500 after depreciation |
| Depreciation | Reduction in value due to age/wear | $2,500 (25%) |
| Recoverable Depreciation | Depreciation paid after repairs complete | $2,500 |
| Non-Recoverable Depreciation | Depreciation that cannot be recovered | Varies by policy |
The Math
RCV = $10,000 (replacement cost)
Depreciation = $2,500 (25%)
ACV = RCV - Depreciation = $7,500
Initial Payment: ACV = $7,500
After Repairs: Recoverable Depreciation = $2,500
Total Payout: $10,000Policy Type Matters