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
estimators 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.