Marshall And Swift Cost Service

[Terrel L. Shields]

The problem with EP is that you have to wait for the first sale to collect it.

 

[CANative]

Profit is what they end up with. EI (which is what is used in the CA) is what you need to start the project.

 

[J Grant]

Me- "The EI in a new home cost approach is the contractor profit as part of their cost charges to build a home and make a reasonable profit, aka what Marshall and Swift uses).

Howard.. "Wrong, wrong, wrong. Contractor profit is contractor profit. It is the component of cost associated with the contractor making a profit in running their business

We are saying the same thing, but I was wrong? Marshall and Swift accounts for EI as contractor profit . I was explaining, the contractor passes their profit along to their customer (buyer of the contractors service) as part of the cost to build. I agree with your post , especially second part, I wrote in one of my posts (post 17) developers/ builders don't always make a profit but can break even, or lose money ( market obs when they lose money,)

 

[Howard Klahr]

We are saying the same thing, but I was wrong? Marshall and Swift accounts for EI as contractor profit .

We are NOT saying the same thing and M&S does NOT include EI at all. Can I say it any clearer? Marshall Valuation Service does NOT include EI

 

[J Grant]

You are correct in that M and Swift does not include market EI in addition to cost, but its cost figures can account for contractor profit ( some use the term contractor profit and EI interchangeably, as they use the term EP and EI interchangeably.)

I was merely stating that a new home contractor can pass along what his EI is to the homeowner as cost to build a house. (inflating the cost to return EI to him)

 

[Howard Klahr]

You are correct in that M and Swift does not include market EI in addition to cost, but its cost figures can account for contractor profit

OK it seems that we are clear on this point

( some use the term contractor profit and EI interchangeably, as they use the term EP and EI interchangeably.)

And then you go on an make this statement. While I agree there are those out there that do use various terms interchangeably, your prior statement acknowledges that the two terms are not the same and should not be interchanged.

I was merely stating that a new home contractor can pass along what his EI is to the homeowner as cost to build a house. (inflating the cost to return EI to him)

While contractors can and often do take on the role of developer especially in custom home situations, in performing valuation analysis we do not combine the roles. Furthermore continuing to perpetuate the misuse of the terms contractor overhead and profit and entrepreneurial profit/incentive doesn't help either. These two items are separate and distinct costs of production despite that on occasion the same individual/entity may perform more than one role.

 

[Michael S]

You are correct in that M and Swift does not include market EI in addition to cost, but its cost figures can account for contractor profit ( some use the term contractor profit and EI interchangeably, as they use the term EP and EI interchangeably.)

I was merely stating that a new home contractor can pass along what his EI is to the homeowner as cost to build a house. (inflating the cost to return EI to him)

Contractor profit is not EI. Most contractors whether a general contractor or a sub-contractor operate on a cost plus model. They total up the expected labor and materials to do the jobs then add in a percentage for profit and/or overhead. If you told an electrician you were only going to pay their exact costs for labor and materials they would tell you to take a hike because they wouldn't earn anything from the job. That contractor profit will be in their bid whether it's for an owner-occupied home, a speculative development, or anything else. I suspect they would try to increase it during good times when there is high demand and limited supply.

I still don't see most owner/users incorporating any sort of profit in to their construction costs. Auto dealerships being one example. The dealer decides they need a new facility to meet current image standards. They hire an architect (or more likely the brand tells them which architect they're going to use), and a general contractor and possibly a project/construction manager. They make tack on 5-10% as a contingency for cost overruns and I guess you could consider that similar to E, but I've never seen a separate profit line item for something like that. Now take a small fast food restaurant and it may cost the developer $800,000 to build it, including land, and they can turn around and sell it as a net leased investment for well over a million and pocket a 50% entrepreneurial profit.

 

[alex gilbert]

EP (or EI) really has to be a component of any spec construction or there's no reason to move forward (there are rare times when this happens, but not often). EP may or may not be present in a custom project for owner occupancy. In an owner occupied situation, EI is not usually the motivation for the project. For the obo project, if the Cost Approach is less than market value, the difference may be EP. Sometimes, there is no difference, and sometimes the CA is well above MV. This can be reflected in the Cost Approach as functional obsolescence super-adequacy, which can be thought of as the reciprocal of EP.

 

[Terrel L. Shields]

EP may or may not be present in a custom project for owner occupancy.

ZACKLEE

 

[CANative]

Logic demands that EP/EI cannot be included in nationally published cost guides or handbooks. It's elusive, market derived and can and does change from one neighborhood to the next. It could stay the same for years and years (probably the mid-west during the 2000's) or it could change tomorrow.

Having said that, the cost tables used by California's Board of Equalization claims that EP/EI is included in the costs. It's likely they have the timely and detailed information in adequate quantities throughout the State to do this.