Chapter 1 Introduction to Cost Estimates

What is an Estimate? An estimate is an evaluation of a future cost. A building cost estimate is an attempt to determine the likely cost of some building work before the work is done. To compile an estimate, you have to answer two basic questions: –How much work is to be done? –What will it cost to do this work? The process of measuring work is called taking off. The takeoff is processed and priced in a number of different ways, depending upon the type of builder and the contract involved.

Residential Builders There are basically three distinct groups of residential builders: –Those that build new homes for sale to home buyers –Those that work under contract to the property owner to build a custom home or renovate an existing property for the owner –Those that construct multi-unit residential buildings for owner/developers Each group has different estimating needs.

Types of Contract Lump sum contract - The builder agrees to complete the project as described in the plans and specifications for a fixed sum. Cost plus contract - The builder is paid for all the costs of constructing the project, plus an agreed fee. Unit price contract - The builder does not bid a sum for the whole job; instead, he quotes a set of unit prices for the work involved.

What is the Purpose of Estimates? To determine the feasibility of projects To calculate an approximate price of a project To prepare a value analysis To set the sales prices To calculate a bid price To determine project budgets in cost control

Estimates for the Spec Builder Spec builders use two methods of setting prices: –With cost-based pricing, the builder begins with the price of the lot, and then adds the estimated cost of construction together with markup to arrive at the sales price. –Using the value-based approach, the builder first investigates the current market prices of the types of home it intends to construct. Then, the cost of a certain design of home is estimated to determine if it can be built for the market price.

Estimates for Calculating Bid Prices Custom home and multi-unit builders use estimates to determine their bid prices. On larger projects, owners and developers often hire architects to prepare the plans and specifications used by estimators to determine the bid price. The type of estimating used here is very similar to that used in commercial construction.

Cost Control Estimates Budgets are established from the project estimate to show the amounts available to build the project. As the work progresses, further estimates are needed each month to determine: –How much work has been done –What it has cost to do that work –What it will cost to complete the project

Methods of Estimating There are two main estimating methods: –Preliminary estimating - price per unit, price per unit area, price per unit volume, and assembly methods; used mostly at the feasibility stage –Detailed estimating – far more accurate; used by most builders when complete drawings and specifications are available A detailed estimate is prepared in six steps: –Takeoff quantities –Recap quantities –Price the recap –Price subcontractor's work –Price general expenses –Summarize

Materials Estimates A bill of materials can be prepared from the estimator’s takeoff of the work for a detailed estimate. Bills of material are usually divided into categories that correspond to materials suppliers such as: –Gravel materials –Concrete materials –Carpentry materials

Architects and Designers Architects and designers create designs for new homes and renovation projects. They are seldom appointed on custom homes these days, except perhaps for some lager and expensive undertakings, because the expense is usually beyond the means of homeowners. Architects are, however, employed as prime consultants on most large multi-unit developments where the project size justifies the expense.

Drawings and Specifications On single-home residential jobs, all the information necessary to build the project is usually contained in a set of working drawings comprising: –A plot plan –Plan views of each level –Building elevations –Cross-sections –Additional sketches and information On larger projects, drawings and separately bound specifications are usually provided. On bid jobs, information about contracts and bid procedures should also be found in the specifications.