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.