5.14.2 Substantial Rehabilitation Costs

• A. The detailed cost estimate should include and evaluate the following:

1. Interior demolition and removal of floors, walls, roofs, doors and windows, finishes, cabinets, appliances, plumbing, HVAC, and electrical, including boilers and central air conditioning. Also includes abatement of asbestos and lead-based paint. Enter the amount in Special Construction trade line in form HUD-92326. If individual trades include removal (e.g., remove and replace cabinets), removal costs may be included in the trade line item.

2. Site preparation demolition is not part of the Construction Contract and should be estimated and recorded in the same way as for new construction.

3. Allowances and Fees for substantial rehabilitation, especially General Requirements and Architect’s Fees, are calculated the same way as for new construction, but they should reflect the risk and

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Chapter 5 Architectural and Construction Analysis 5.14 Firm Commitment Cost Package

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responsibility inherent in rehabilitation and consider the location of the project. It is recommended that the Construction Analyst keep separate data for this item.

4. Rehabilitation time is determined the same way as construction time for new construction, but the data used must take into account the time required for interior demolition, as repair and rehabilitation cannot begin until such demolition is complete.

5. Rehabilitation Cost Not Attributable to dwelling use includes an “as-is” value for non-attributable items in addition to a value for actual work performed. Calculate by using the format in Appendix 5, Section A.5.10.2. The Construction Analyst completes steps 1, 2, and 3; steps 4 through 8 are completed by the appraiser.

6. The contingency reserve amount is based on available data for the type and condition of structure. Calculate as percentage of the sum of structures, land improvements, and general requirements. Percentage ranges from 10 to 15%, depending on the condition of the project, extent of rehabilitation, and experience and financial capacity of the Borrower and contractor. Enter amount in line G.71 and in Section O of form HUD-92264. Subject to Lender and HUD approval, the Borrower may elect to apply any funds remaining in the substantial rehabilitation construction contingency account after completion of the approved rehabilitation, to:

   • further improvements, betterments or upgrades to the property, provided however, that these additional improvements will not be considered as the basis for a request for an increased mortgage amount;

• an initial deposit to the RfR account; or

• reducing the mortgage balance.