Chapter 11 ESTIMATING BUILDING COSTS

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Chapter 11ESTIMATING BUILDING COSTS
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Cost Approach

• Value
• Reproduction(replacement) cost if new
• - Accrued Depreciation
• Land Value

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Structure costs

• Reproduction
• cost of exactly duplicating everything in
  building
• Replacement
• cost of duplicating all the functionality of the
  building but not necessarily every detail
• Implicitly accounts for some functional obs.
• Uniform Residential Appraisal Report requires
  reproduction cost

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Structure Costs

• Hard costs
• Soft costs
• Developers profit

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Hard Costs

• Includes
• Material
• Labor
• Contractors Overhead and Profit
• Typically all items in contractors bids

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Soft Costs

• Indirect Costs Associated with Construction
• Includes
• Studies Appraisals
• Insurance
• Taxes
• Engineering and Architectural Fees
• Surveys, Title Search,
• Construction Interest/Financing
• Lease-up Costs

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Sources of Cost Data

• Ideally, use actual construction cost or budget
• Construction Cost Comps
• Use books such as
• Marshall Valuation Services, Boeckhs,F.W.
  Dodge, R.S. Means
• Local professionals -- contractors, builders

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3 Methods of Estimating

• Comparative Unit
• Most commonly used
• compares subject house to a cost of an overall
  new house (cost per square foot)
• Unit in place
• each assembly individually valued(i.e. wall area
  /unit)
• Quantity survey
• very detailed, tries to duplicate contractor

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Cost Trending

• Given historical construction costs, use cost
  trend indices to update to current cost
• Example
• 1995 Construction Cost 1,500,000
• 1995 Cost Index 115
• 1999 Cost Index 123
• Est. 1999 Construction Cost (123/115)
  1,500,000 1,604,347

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Estimating Soft Costs

• See Overhead
• Entrepreneurial (Developers) Profit
• Difficult to estimate
• Use expected return, not actual
• Varies depending upon risk/uncertainty
• Not the same as contractors profit