Why is estimating Constructon Cost & Controlling it Difficult?

[Vijay Kurhade]

Most uncertain or fluctuating price items as far as entire development goes are Land and Sale prices, but other areas remain fairly possible to estimate at very early stage in project.

Even then, Why does following areas are considered some of the challenges for novice to seasoned developers despite having so many tools nowadays to help them.

A] Estimating fairly accurate Construction Costs(Hard + Soft)

B] Controlling Costs, Budget

C] Financial structure (equity, debt, draws, taxation, insurance)

Thanking in advance

[Account Closed]

I've been in construction-related businesses since 1968 and never saw price increases like I've seen in the past few years.

The problem today is many building materials have increased 100% to more than 200% in the past two or three years. I think plywood went from about $30 per sheet to almost $100 per sheet and think about how that affects the average house with a 3200 sq ft roof that requires 100 sheets of plywood plus 10 for waste = 110 sheet X an increase of $70 per sheet = 110 x $70 = $7,700 more than contractors paid a few years ago just for the roof and then 2x 4's increased from about $3 to $10 by the time you pay tax. So, the cost for 2 x 4's increased by 300%.

But, the cost for materials is not the biggest problem. The cost for labor has increase by about 300% in the past few years. Just a few years ago, most of my skilled technicians were more than happy with $18 per hour. Today, try going to Home Depot to pick up a labor to help clean trash. The illegals at Home Depot are sort of unionized where they will get beat up by other illegals if they don't demand $25 per hour. That burns my buns with illegals are asking for $25 per hour, tax free, and that is more than most legal Americans are earning when working at restaurants, or for Costco, Sams Club,  UPS, Amazon, etc.

The problem I am having is my own employees do jobs for a percent, or commission and they were satisfied when them earned $1,000 to $1,200 per week. Now, my employees are demanding $300 per day regardless of the number of hours they work and regardless of whether or not I have work scheduled for them. A few years ago, I guaranteed my employees $18 per hour and now they are demanding a minimum of $37.50 per hour.

When I call sub contractors their prices are so high I can't believe the prices I am getting and I can't fathom how they come up with the prices they want.

I have a 3,000 sq ft flat roof that can be entirely scraped to the wood and replace within three days by 4 workers. I called 4 roofing contractors. I actually have had a roofing license for 40 years and I installed the roof I need to replace about 20 years ago. The materials for this roof will cost less than $4,000 and the lowest price I got was $37,000. That is a $33,000 profit for 4 workers for 4 days. B.S. I am 71-years old and will replace the roof myself.

I have another 30,000 sq ft  composition roof I want to replace. I figured the roofing materials would cost $25,000 and 10 workers could replace the roof in no more than 6 days. The lowers price I got was $120,000. That is a $95,000 profit for 10 workers for 6 days = $1,583.00 per worker per day.

I wanted to get the inside of a 3-bedroom home painted in Boise Idaho. I called 3 paint companies and the lowest price I got was $65,000. I drove from Los Angeles to Boise with one employee, painted the house in two days and even if I paid myself and my employee $40 per hours the cost was 16 x $40 = $640 plus $400 for paint and essentials = $1040. Even if the painters had a 300% markup the total should be  only $1040 x 300% = $3,120. One painter wanted $7,500. That is almost 7 times my cost.

When the cost to rent an apartment went from $950 to $2100 and grocery stores more than doubled the cost for food and even made packagea of food one-third smaller and I just put gas into my 21-year old Volkswagen today and the cost was $4.99 per gallon and the cost to fill that tiny tank was $65, then I suppose all workers need to get their pay increased by 200% to 300% so they can barely survive. While my company has a hard time paying our employees because we have to increase our prices to pay them, I completely understand their predicament.

I am so happy I am 71-years old and won't have to deal with the problems in this world that I foresee e.g. if something doesn't happen where we get tons of rain I California, Las Vegas and Arizona are going to have very serious problems and I really don't think we will ever get enough rain to fill all the lakes that are bone dry, right now. I suppose, we can start desalinating ocean water, but during the past couple years the cost for water has already increased by 300%. The cost for water at my apartment buildings is the most expensive bills we get other that property taxes. I have a 28-unit where the water costs me $2,100 every month and that is $25,200 per year. My property insurance for the building is about $8,000 per year and the property tax is about $48,000. When you compare those bills with water the water cost is extremely expensive compared to a few years ago.

The challenges are keeping up with all the extreme increases in prices. One more serious problem we have as contractors. Many years ago, the average business license was $35 per year and we work in about 40 difference cities every year where we need some type of plumbing or building permit. In the 1970's a  plumbing permit was $3.50 to $4.50. So. to get a business license and a permit the cost was about $40. Today, many cities are charging about $350 to $500 just for the business license. The city of Torrance used to charge $35 for a business license and that covered both our plumbing classification and our general building classification. Today, the city of Torrance charges something like $850 (not positive) for our business license. We took out a plumbing in Inglewood California a few months ago. We charged our customer $3200 to replace their drain pipes and the permit cost us $499 just to have an inspector come out one time. He never looked at the plumbing because it was  under the house and he signed the permit off. If my company charged our customers $499 to have one of our supervisors inspect the job and sign it off we would got to jail for elderly abuse, price-gouging, wire fraud because we transacted some of our communications over the internet and we would lose our contractor license.