REPRINT FROM THE INTEGRAL NEWSLETTER
The Reconstruction Cost Method is a simple cost estimating system. Based on the component unit pricing of the structure, and with a minimal number of refinements from a basic reproduction cost table, an accurate replacement cost can be estimated. Because this cost estimating system requires few calculations, it can significantly reduce the amount of time spent per report. Unit costs are provided for most types of structures.
WHAT THE COSTS CONTAIN:
An estimated replacement cost will reflect those costs that the restoration contractor incurs during the period of construction of the building. Land and the cost of development are not included in any cost. The following is a more specific listing of what the costs do, and do not include:
INCLUDED IN THE COSTS:
- Plans, specifications, surveys and building permits.
- Normal interest on only the actual building funds during the period of reconstruction, and processing fee or service charge. Typically, this will average half of the going rate over the time period plus the service fee.
- All material and labor costs including all appropriate local, state/provincial and federal sales taxes or GST, etc.
- Normal site preparation including finish, grading and excavation for foundation and backfill for the structures only.
- The Restoration Contractors’ overhead and profit, including job supervision, workmen’s compensation, fire and liability insurance, unemployment insurance, equipment, temporary facilities, security, etc.
- Normal Restoration Contractors’ hidden damage or incomplete information received charges normally associated with a Scope of Damage.
- Normal Restoration Contractors’ costs for protection of existing finishes and features on the site, as well as any charges incurred from impeding the restoration process during reconstruction.
- Normal Restoration Contractors’ costs associated with the expediting of the restoration process in order to reduce any business interruption or additional living expenses that the insurer incur by the restoration contractor working normal business hours.
- Normal expenses that the Restoration Contractor may incur in conjunction with scheduling and completing the restoration around the insured’s schedule/and or input.
NOT INCLUDED IN COSTS:
- Costs of buying or assembling land, such as escrow fees, legal fees, property taxes, right of way, demolition, storm drains or rough grading unless otherwise stated.
- Pilings or hillside foundations unless a hillside multiplier has been applied. This also refers to soil compaction and vibration, terracing, etc.
- Costs of land planning or preliminary concept and layout for large developments inclusive of entrepreneurial incentives or developers’ overhead and profit are not included, nor are interest or taxes on the land, feasibility studies, environmental impact reports, hazardous material testing, appraisal or consulting fees, etc.
- Yard improvements including septic systems, walls and fencing, landscaping and yard lighting, pools or other recreational facilities, etc. unless otherwise stated
- Off-site costs including sidewalks, curbs and gutters, utilities, park fees, jurisdictional hookup, tap-in, impact or entitlement fees or assessments, etc.
- General contingency reserve where a percentage of the total cost is set aside for some unknown future event, such as labor strikes, anticipated labor and material increases, etc.
- Costs a Restoration Contractor may occur due to a National Catastrophe in the region of this location.
- Costs associated with Mold Damage, and/or Grow Operations however caused.
INFLUENCE OF LOCAL CONSTRUCTION PRACTICES
Costs contained are based on a sampling of final building costs of structures actually built. The published costs represent points on a curve and are averages of many building costs. Since construction practices vary from one location to another, some of the specific component costs may differ from those published. These differences generally stem from one or more of the following:
- Local building code regulations.
- Climatic conditions.
- Availability of specific materials.
- Local buyer resistance to some specific designs and materials.
- Available public utilities.
Component items that are directly affected by these differences include: foundations, electric wiring, rough plumbing, exterior wall sheathing, interior wall and ceiling cover, heating and insulation. Because variations occur quite frequently, often from one city to the next, it is not within the practical size limitations of any cost source of this kind to attempt to provide variations in building components for every geographical location. The Report does provide adjustments for many of the more common variations, such as roofing, flooring, heating, insulation, etc. Local Multipliers, when applied to the total replacement cost, may also adjust for variations in component costs as a whole. However, Local Multipliers, when applied to specific component costs or to Unit-in-Place costs, may not adequately adjust for a particular geographical area.
COST AND VALUE
REPLACEMENT COST – The replacement cost of a building is the total cost of construction required to replace the subject building with a substitute of like or equal utility using current standards of materials and design. These costs include labor, materials, supervision, the restoration contractors’ profit and overhead, architects’ plans and specifications, sales taxes and insurance. The major portion of the Marshall Valuation Service is devoted to the development of Replacement or Reproduction Costs by various methods.
REPRODUCTION COST – The reproduction cost of a building is the total cost of construction required to replace the subject building with an exact replica in all salient characteristics or components. With newer structures, the terms ‘reproduction’ or ‘replacement’ will be somewhat synonymous, while with older structures, a reproduction approach endeavors to replace with like kind where possible and is more akin to the Segregated Method. In the case of totally obsolete or unavailable components, a true reproduction in its strictest sense may not always be possible or desirable.
PRINCIPLE OF SUBSTITUTION – An economic principle stating that the price of a commodity tends to be no higher than the price of a substitute having equal utility, available without undue delay. This is the basis of the Replacement Cost approach to value, where the costs found in the Marshall Valuation Service are obtained directly from the restoration construction market. No system, whatever its degree of sophistication or detail, can be better than the market-derived information on which it is based.
VALUE – Value has many classifications and meanings for various appraisal purposes. A few of these are Actual, Cash, Amenity, Assessed, Book, Capitalized, Market, Economic, Depreciated, Historical, Intangible, Caprice, Loan, Physical, Salvage, Leasehold, Tangible, and many others. In any kind of appraisal work, it is necessary to know the value, which is sought, and to be sure that the value concept used is in conformity with sound practice and general understanding.