Cost Estimating Techniques

The degree of accuracy determines the technique of estimating cost. If the appraisal calls for accuracy comparable to that of a contractor preparing a construction bid, the quantity survey method would be used. If less accuracy is allowable, and if the required estimating skills and data are at hand, unit-in-place estimates substitute for quality survey methods. In most instances the square foot/cubic foot cost estimate serves the purposes of the appraisal.

1. Quantity Survey Techniques. The quantity survey require: a listing of building materials and their costs in addition to the labor required in hours times the hourly labor cost. In summary form the quantity survey estimate would re-quire the separate calculation of the cost of building materials and labor:

Quantity of material x Price = Material cost

Hours of labor X Hourly wage     =         Labor cost____
Total building cost

The materials and labor are individually priced for each building component. Printed forms are used to assist in the calculation of the material and labor costs of constructing each building. While the quantity survey is the most accurate cost estimation technique, it requires a detailed list of cost data, time consuming calculations, and a technical knowledge of construction practices.

2. Unit-in-Place Estimates. Costs based on unit in place refer to the combined costs of material and labor to construct a unit of material. The method saves considerable time in estimating costs; it requires less technical knowledge than does the quantity survey estimate. Further, for the most common types of construction, unit-in-place estimates are readily available.

To illustrate, contractors estimate the labor time to construct a brick wall, lay a hardwood floor, or complete a roofing installation. Suppose that a roofer can apply 100 square feet of asphalt shingles in two hours. The cost of the roof would be the labor cost per 100 square feet of roof (P15) and the cost of 100 square feet of roofing shingles (P30). The unit-in-place cost for a new roof would then be expressed as P45 per 100 square feet of roof. Unit-in-place costs (ire commonly measured in terms of such units as square feet, square yards, lineal feet, and thousand board feet of lumber. 3. Per Unit Estimates. These estimates, usually expressed as costs per square foot or cubic foot, are sufficiently accurate for most appraisal purposes. Cubic foot estimates are used to value buildings with varying ceiling heights, such as theaters, auditoriums, and industrial plants. Square or cubic foot building costs are derived from local contractors, the analysis of recently constructed buildings, or cost manuals.

A manual published by the Eastwood Division of the Philippine Appraisal Company provides

cost tables classified by type of residential structure, showing the price per square foot for the base building and lump-sum figures for building fixtures and other building components. The company publishes bimonthly multipliers so that published costs may be maintained on a current basis. For certain types of construction in which suitable market examples are unavailable, cost manuals guide the appraiser’s final cost estimate.

Find out more about depreciation on the next blog article.