Overhead and profit are terms that frequently appear in repair estimates, and understanding what they represent can help clarify why they are often included as part of a repair cost calculation.
Overhead generally refers to a contractor’s ongoing business costs, such as office expenses, insurance, and administrative support, that are not tied to any single specific job but are necessary for running the business.
Profit generally refers to the margin a contractor needs to earn to remain a viable, sustainable business, separate from the direct cost of materials and labor for a specific repair.
These costs are often included in repair estimates, particularly for larger or more complex jobs that require coordinating multiple trades or subcontractors, since managing that coordination is itself a legitimate cost of doing business.
Disagreements can sometimes arise over whether overhead and profit are appropriate for a specific claim, or over what percentage should be applied, making this a topic that can come up during the appraisal process when estimates are compared.
This article is general education about how the appraisal process commonly works. It is not legal advice, and specific procedures can vary by state and policy. If you have questions about your own claim, review your policy language and talk with your insurance company, agent, or an attorney familiar with your state’s laws.
Russ Lis is a working property insurance appraiser and umpire based in Minnesota, serving clients nationwide. Have a question about your own claim? Contact Appraisal Resolution.