When Contingency Fees Make Sense – Residential & Commercial Guide

Understanding the rare situations where percentage-based billing is reasonable.

Contingency fees get criticized for good reason — they reduce ACV, put RCV at risk, and can leave property owners with large out-of-pocket shortfalls.

But contingency billing is not always wrong. There are very specific situations — for both residential and commercial owners — where contingency fees make sense and do not create financial danger.

This guide explains those situations clearly.

1. When You Are Selling the Property “As-Is” (Strategic Sale)

This applies to homeowners, landlords, investors, and commercial property owners.

In this scenario, the owner decides not to repair or rebuild. Instead, they want to settle the claim and then sell the damaged asset in its current condition.

Residential examples:

  • Homeowner selling a fire-damaged house
  • Landlord selling a storm-damaged rental
  • Divorce or estate sale where repairs are unnecessary

Commercial examples:

  • Investor selling a burned retail building
  • Business offloading a damaged warehouse
  • REIT choosing to dispose of a distressed asset

Why contingency can make sense here:

  • Only ACV matters
  • No need to incur RCV
  • No construction invoices required
  • Zero upfront cost
  • Faster settlement -> Faster sale

Summary:

  • This is a strategic business decision, not a distressed situation.

2. When the Owner is Walking Away (Distressed Exit)

This scenario is very different from selling as-is. Here the owner is not trying to maximize value — they are simply exiting the property entirely.

Residential examples:

  • Foreclosure or pre-foreclosure
  • Bankruptcy
  • Abandoning a total loss
  • Underinsured homeowner with no ability to rebuild

Commercial examples:

  • Landlord defaulting on mortgage
  • Business shutting down after catastrophe
  • Condemned commercial building
  • Corporate write-off of a damaged asset

Why contingency can make sense here:

  • Owner is not rebuilding
  • Owner does not need RCV
  • ACV payout is the only goal
  • No invoices required
  • No upfront cost during hardship

Summary:

  • Selling “as-is” is strategic.
  • Walking away is distressed.
  • Both involve no repairs, but for completely different reasons.
Home insurance appraisers in Ontario

3. When the Claim Is Small (Residential or Commercial)

For small claims – often under $30,000 to $50,000 – the RCV difference is small, and the risk of losing the holdback is low.

Why contingency can work:

  • Minimal RCV exposure
  • ACV may cover the entire loss
  • Flat/hourly fees may not be cost-effective

4. When the Client Cannot Pay Anything Upfront

Some homeowners, landlords, and businesses simply cannot fund hourly or flat fees.

Contingency makes sense when:

  • Cashflow is tight
  • Ability to pay a retainer does not exist
  • The alternative is having no representation at all

This situation is less about strategy and more about affordability.

5. Contents-Only, ALE, or Business Interruption Claims

These types of claims do not require reconstruction, so the RCV/ACV trap does not apply.

Applies to:

  • Homeowners (contents & Additional Living Expenses)
  • Businesses (contents, inventory, equipment, BI claims)
  • Commercial tenants (tenant improvements, FF&E, stock)

Why contingency is safe here:

  • No construction → No RCV holdback
  • No invoices required
  • Payment is based on documentation, not repair cost
Appraisal vs Incurred Costs Canada

When Contingency Fees Do NOT Make Sense

Regardless of residential or commercial status, contingency is risky when:

  • The property will be rebuilt
  • The claim is medium or large
  • The owner needs to recover full RCV
  • Construction invoices are required
  • The owner wants to avoid losing the holdback
  • The owner wants the maximum recovery

These scenarios are where contingency creates the RCV/ACV shortfall trap and can cost the owner hundreds of thousands.

Quick Summary for Residential & Commercial Owners

Contingency fees make sense when:

  • You are selling the property as-is
  • You are walking away (distressed exit)
  • The claim is small
  • You cannot pay upfront fees
  • The claim is contents-only, ALE, or business interruption

Contingency fees do not make sense when:

  • You are rebuilding
  • You need to prove full RCV
  • You want to maximize recovery
  • You want to avoid out-of-pocket shortfalls
  • The claim is significant

Contingency agreements are not inherently bad — they are simply a tool. Used in the wrong situation, they can create major financial risk. Used in the right situation, they can be reasonable.

The key is understanding the difference — and guiding clients accordingly.

Final Thoughts

Contingency fees feel simple at first — but they can take a large portion of your settlement and leave you without enough money to complete repairs.

Flat or hourly fees are more transparent, more predictable, and far more cost-effective, especially on large claims. The billing model you choose can determine how much you keep, how much you lose, and how successfully you can rebuild after a loss — but ultimately, the safest path is using PAAC for both your advocacy and your construction, ensuring the full RCV is proven and avoiding significant out-of-pocket shortfalls.