Cohousing-L Mailing List: Re: cost estimates

[Diana E Carroll (dianaecarroll]

Marganne asks:

> Why is it acceptable to have someone charge you more money than what
> you originally agreed upon?

It's not that simple.

First, when you say "cost overrun", you mean relative to what?  The 
agreed upon contract price from the builder?  That's not where our 
"overruns" happened.  Here's what happened to us:

1 - long long before we found land or decided on the specifics of the 
community, we developed a target budget for how much the homes would 
cost, based on what people could afford and with guidance from Chris 
ScottHanson, a cohousing professional.  We presented that target budget 
to new potential members who decided whether to buy in based in part on 
whether those hypothetical prices were affordable for them

2 - our land search took much, much longer than we expected (7 years) 
and involved costs with various professionals (our professional CSH, 
architects, engineers for feasibility, etc) not to mention ongoing costs 
for marketing, legal, etc.  These sunk costs get added to the budget, 
raising our target prices.

3 - Eventually we found land.  We did a VERY PRELIMINARY feasibility 
study to determine if the land would work and get an idea what building 
would cost and adjusted our budget, again with CSH's help...the budget 
went up, of course.  I don't know why the budget in step 1 wasn't or 2 
wasn't enough -- part of it was mis-estimation, part of it was because 
the actual land we found had some complicated aspects of development 
that we hadn't anticipated, some is because the cost of labor and 
materials had increased over those 7 years.  Some of the folks who 
bought in when the budget was at stage 1 above were now priced out.  Is 
this a "cost overrun"?

4 - We hired engineers and architects and began the long process of 
actually figuring out what the community would look like.  We had our 
target budget from step 3 above in mind.  We made out plans and 
submitted them to builders for bids, and the bids were far higher than 
we had wanted.  Why?  In part we set our sights to high.  But in LARGE 
part is was because we had used a too low "cost per foot" estimate for 
construction.  We went through the painful process of letting go of some 
of what we wanted to lower the costs (a process called, ironically, 
"value engineering"), and also raised our prices...again pricing out 
people who had thought our price point would be lower.  Is this a "cost 
overrun"?

5 - we selected a builder with a fixed contract price.  Over the 2-3 
years of construction, we found there were various things that needed to 
be changed -- stuff we forgot, aspects of the land we didn't know about 
until construction started, things we were forced to add by various town 
and state officials...these were "change orders" to the original 
contract that raised the cost.   Plus there were WAY more "soft costs" 
(non-construction costs -- legal fees, consulting fees, architects, 
engineers, marketing, etc.) than anyone had anticipated.  So...we raised 
our budget AGAIN.  Again we lost people due to the price increase.

In the end the cost of our homes was about DOUBLE what the original 
target price was in step 1.  I don't know whether this qualifies as a 
"cost overrun" by your definition, but it is definitely part of what 
people mean when they talk about "spiraling costs", and very little of 
it came down to what you described as thinking it was "acceptable to 
have someone charge you more money than what you originally agreed upon"

- Diana
--
Now is the time for community........Mosaic Commons cohousing
Homes still available...........http://www.mosaic-commons.org