Who Decides the Labor Rate in an Appraisal?

by Justin Petty

Question:

We recently had a repair dispute go to appraisal, and one of the biggest differences between our estimate and the insurance company’s estimate was the labor rate. Our shop has an established rate, but the insurance appraiser kept saying the carrier would only recognize its “prevailing rate.” Once a repair dispute goes to appraisal, who actually decides what the proper labor rate should be?

Answer:

This is one of those questions that sounds complicated, but the basic answer is pretty simple: once the amount of loss is in appraisal, the appraisers are supposed to independently determine the reasonable cost of the repair, and labor is part of that cost.

That does not mean the insurance company automatically gets to dictate the labor rate simply because it says that is the rate it pays. It also does not mean the repair facility automatically gets whatever rate happens to be posted on the wall.

The question is: What is a reasonable labor rate for this repair, in this market, at the time of the loss?

That takes some actual investigation.

For years, insurance carriers have used terms like “prevailing rate,” “market rate” and “competitive rate,” but those words do not establish anything by themselves.

If somebody tells me that $60 per hour is the prevailing body labor rate in a market, my next question is pretty simple: Based on what?

What shops were surveyed? Where are they located? Are they comparable facilities? Are they actually willing to perform this type of repair at that rate? Are those rates influenced by contractual DRP relationships? How current is the data?

Those are appraisal questions.

The same goes for the repair facility. If a shop charges $90 per hour, that is certainly relevant evidence, but the appraiser still has to determine whether that rate is reasonably supported in the local market.

And not every labor category should necessarily be treated the same.

Mechanical labor, structural or frame labor, aluminum repair, body labor and refinish labor may involve different equipment, training, technician skill levels and market rates. A shop repairing a modern vehicle with specialized tooling, certifications and repair requirements may also have different costs than a facility performing less complex work.

That does not mean every certification automatically justifies a higher rate. It means the appraiser should actually look at the facts instead of blindly accepting a number from either side.

One thing I do not put much weight on is the statement, “That is all the insurance company pays.”

That may tell me what the carrier prefers to pay. It does not necessarily tell me what the repair reasonably costs.

Likewise, “That is what we charge” is a starting point, not the end of the investigation.

Good appraisal work requires evidence.

That might include posted and invoiced labor rates from comparable repair facilities, independent labor-rate surveys, actual market invoices, the type and complexity of the repair, geographic location, the qualifications of the repair facility and any other information that helps establish what similar repairs reasonably cost in that market.

And remember what appraisal is supposed to accomplish.

The appraisers are not there to enforce the repair facility’s business model, and they are not there to protect the insurance company’s cost-control program. They are there to determine the amount of the loss.

If the two appraisers cannot agree, then the remaining labor-rate dispute can be presented to the umpire, who should perform the same type of independent analysis.

There is another important point here for shops.

Document your rate.

If you believe your labor rate is reasonable, be prepared to explain why. Know what comparable facilities in your market are charging. Keep invoices and other support when appropriate. Understand the investment you have made in technicians, equipment, training and certifications.

Simply saying, “That’s our rate,” leaves the appraiser very little to work with.

At the same time, an insurance company should not be able to turn an unsupported internal number into a market rate simply by repeating it often enough.

In the end, the proper labor rate in an appraisal should not be determined by who says their number the loudest.

It should be determined by the evidence.

Want more? Check out the November 2026 issue of Texas Automotive!