It is generally helpful to segregate costs into two classes: 1) Allocated or Common Costs, costs that are applicable to all lots, pads or square footage of the Development. Examples might be an arterial road or a community recreational facility. 2) Direct Costs, costs that are directly applicable to a specific phase or market segment of the Development, and the subject of this article.
Conceptual direct costs are often erroneously estimated by noting the latest per lot direct costs on a similarly sized product, from a previous phase or development and perhaps adjusting for inflation in construction costs. For example, if the yield of a previous phase of single family lots was 100 - 60' lots, at a direct cost of $3.0 million, then the conceptual direct cost of the new project could be projected to be $30,000, plus inflation, on a per lot basis.
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Conceptual Direct Cost Estimates (continued)
In my experience, at this stage, costs are the most difficult to estimate for the financial pro forma. Engineering plans are typically
not available, due to the lack of time and expense. However, utilizing a conceptual lot or layout study, conceptual direct cost estimates
can be derived.
It is often convenient to visualize direct costs on a per lot basis, i.e., "x" dollars per 60' lot, as a comparison with similar
projects. However, it is erroneous to transfer direct costs on this basis to another project. What is required, is a measure of the
infrastructure costs, which typically relate to the efficiency of the street system, not lot size.
Therefore, superior conceptual estimates can be provided by utilizing direct costs expressed in terms of dollars per linear foot of
street. The difference in efficiencies are illustrated by contrasting Sketches A & B.
Sketch 'A'