5.12.1 Estimation Method

A. For new construction and substantial rehabilitation, the cost estimating method should be similar to that used by General Contractors. For new construction and substantial rehabilitation, data should be

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Chapter 5 Architectural and Construction Analysis 5.12 Cost Estimating for Lenders

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organized by trade division using the Construction Specification Institute (CSI) Format,[17] then adjusted to reflect cost differences due to time, location, and price fluctuations. The cost estimate may be prepared using a quantity takeoff or a square-foot and per-unit cost approach using established data and making adjustments. The Lender’s Construction Analyst must develop form HUD-92326 cost estimates independently and compare with the General Contractor’s HUD -2328 costs using the HUD -92331-B.

B. For repairs and alterations less than substantial rehabilitation, Needs Assessors and Lender Construction Analysts should develop and document costs in the CNA e-Tool, estimating costs for each repair item and component replaced or added new.

C. Replacement cost and insurable values for each building are calculated for casualty insurance purposes. Insurable values by building must be estimated assuming the task of reconstructing the building if it is destroyed, i.e. for the cost of replacing the building as if new (not restoring the structure as it was originally built using obsolete methods and materials). Accordingly, for all existing structures, replacement cost as if new (notwithstanding its condition) should be estimated for each building on a “per square foot” basis. This figure should be entered in the CNA e-Tool on the Buildings screen. For new construction, estimated costs are “as if new” and so total estimated costs of buildings, (not site improvements) including soft costs and fees should be converted to a “per square foot” figure for each building and entered in the CNA on the Buildings screen. (See Appendix 5, Section A.5.7.5).

D. The data source(s) used to prepare cost estimates must be documented. Acceptable cost data may come from completed comparable projects, benchmark amounts taken from actual project costs, and published data from construction cost data publishers. The CNA e-Tool requires that replacement cost estimates briefly describe data sources/methods.

E. The Lender’s Construction Analyst should use detailed plans and specifications supplied by the Project Architect as a basis for the cost estimate. Estimates must reflect the general level of construction costs in the locality where construction takes place. Costs must be projected to the midpoint of the estimated construction period. Davis-Bacon labor wage rates must be used for new construction and substantial rehabilitation. It is the Lender’s responsibility to obtain current Davis-Bacon wage rates from HUD and to ensure that the project design team and General Contractor are provided with the relevant and most recent, applicable wage decisions. For new construction and substantial rehabilitation, the cost estimate is tabulated on form HUD-92326, and totals are reported in Sections G, M, and O of form HUD-92264.