Tag Archives: budget

The water service problem

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I got freaked out pretty badly in the open plan review meeting over the code-required water service upgrade from 1 inch to 1 ½ inch, mainly because of the additional $10k to $15k price tag.

Once I got over the initial shock, I asked the plumbing reviewer what options I would have if I didn’t want to upgrade. Asking doesn’t hurt, right? To my surprise, I was presented with the following option (I paraphrase):

“If you can get a code variance letter from the commissioner of the Department of Water Management (DWM) saying that they are OK with the existing 1 inch water service, then we will be OK with it.”

I felt much better already, even though I had no clue to what my chances were to actually get that code variance.

The next logical step was to get on the phone with the plumbing inspectors at the DWM to present my case. I explained that we have applied for a green permit, that we are rehabilitating a three unit building and that we have plans for exceptional water management with all the low flow fixtures.

I was delighted to notice that the inspector was actually willing to evaluate if the 1 inch service line would suffice for the project. He asked for the plans and product information on all fixtures, which I e-mailed him right away.

Based on this information, the plumbing inspector added up all fixtures and developed a worst-case scenario. It is basically a calculation of how many gallons per minute (gpm) are needed at peak use and whether the existing 1 inch water service can deliver that amount.

More good news! It appears that the existing 1 inch service must do the job, because I was asked to submit a formal letter in which I applied for the variance. My case was presented to the commissioner and I received the variance approval shortly thereafter.

I took the letter back into another open plan review meeting, in which I received the missing final sign-off for the plumbing. All plans and documents went back to our green permit project manager who issued the permit a couple of days later. It was time to celebrate – and we did!

The water service issue added another two week delay to the green permit process and made me jump through a few more hoops (thank God I am somewhat fit!). It also saved us $10k to $15k, which we had not included in the budget. Plus, the green permit means we had no permit fees. Not such a bad deal after all!

Cost shock management – developing a budget

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In order to develop a somewhat reliable project budget, we need a real property, which we now have (finally). I mentioned in the 04/12/2009 post our efforts to put a rehab budget together. Let’s look at this process in some more detail.

  1. Fact: Our total loan amount for the sustainable project includes the purchase price of the property plus the money for the green rehab.
  2. To pursue any meaningful budget exercise, we needed a basic plan for our green rehab ideas. Our project principles and rationales provided that framework.
  3. We shared this information with vendors and contractors and arranged for meetings at the property to discuss the project, its various components and the associated work in more detail.
  4. After we shared this basic information with vendors and contractors, we solicited initial ballpark estimates. These estimates became the foundation for our rehab budget.

The tricky part in all this is that we have no final design or engineering. In other words, some of our assumptions may have to change down the road. Those are the same assumptions on which the contractors and vendors based their estimates, which we in turn used to as the foundation for the budget development. Sounds like a house of cards, doesn’t it?

Why would some assumptions change? Well, this is an old house, and we don’t have a full inventory of the building. Electrical, plumbing and heating will most likely need to be completely rebuilt. But we can’t look into the walls to see what other problems, if any, are lurking there waiting to be discovered – such as structural damage (God forbid).

I owe an apology to all vendors and contractors that were kind enough to issue their estimates. I did to them what I do not like having done to myself in my capacity as a landscape architect. And that is to answer the question of “what does the project cost,” based on very little research and very vague parameters. You typically can’t win in these situations, and risk an unhappy client because the budget will change with every piece of new information that rolls in.

The contractors and vendors have my sympathy and my gratitude for working with the limited information I had at the time.  The exercise wasn’t fruitless because we got to meet and talk about the project. The vendors and contractors extracted more details on our plans and expectations, while we were able to evaluate a potential working relationship.

I don’t plan to hold the vendors and contractors to their estimates, but use the numbers to the development of the initial project budget – something that I still need to complete.

Getting over the cost shock

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The cost shock kept us occupied for some weeks. It gave us time to reflect, which was very much needed (our house search was going slowly at the time). We were able to put our finger on a fundamental flaw in my thinking.

For example: A tight building envelope, or a super-insulated home, is very important and a top priority for us. It significantly reduces the building energy consumption and operational cost. It further allows scaling back and cost-savings on mechanical equipment, such as heating and cooling.

With that said, why exactly do I want radiant floor heating in a super insulated home (see also 05/07/2009 post)? It’s like I am searching for a hybrid car with eight wheels, just because I like wheels. It is counterproductive and will have a negative effect on the gas mileage. Four wheels will do the job! And you know what? Two wheels will do an even better job – that thing called bicycle. Not only would I not burn gasoline or require all that energy that goes into the production of the automobile, but I get the needed fresh air and exercise and have the opportunity to wave hello to my neighbors while I am pedaling by.

Why was I focusing on radiant floor heating (and some other fancy but costly items), if all I really need is a solar collector, a hot water thank, and a very simple radiator system that only needs to come on occasionally?  Time to rethink and remember basic sustainable design principles!

Cost shocked

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Let’s take a big step back: About a year ago, during the early house hunting phase, we began to research the potential total project cost at a very basic level. The equation is pretty simple: One part is the purchase price of the property. The other is the cost for rehabbing it into a zero-energy home. I ignore all the landscape work that is not directly related to the building structure for now, assuming I will do that work myself as I did at the 168 Elm Ave. pilot project.

The sum of the purchase price plus the cost of rehabbing should not exceed the potential (appraised) resale price. We admit that the latter is a rather difficult to determine in this current market.

At the time (one year ago) we assume a purchase price of $150,000 and a resale price of $250,000. That would leave us with a $100,000 rehab budget. What do we get for a $100,000 if I have around 3,000 square feet to rehab? To find out I developed a very basic laundry list of rehab items for an imaginary two flat. I talked to some colleagues, material suppliers and tradesmen and came up with the following:

  • $10,000 for roof replacement
  • $30,000 for plumbing
  • $10,000 for electrical
  • $25,000 for windows
  • $15,000 for insulation
  • $50,000 for radiant floor heating
  • $10,000 for framing work
  • $20,000 for drywall
  • $25,000 for bathroom and kitchen (two flat)
  • $195,000 total estimated project cost!

We have a problem – a $95,000 problem. Even if we assume a rock bottom purchase price of $100,000, we would still be $45,000 over budget – unless we feel that we could sell the house eventually for $295,000. That would just cover the cost but not account for any payback for our time we will have invested into the project. Furthermore, there is the curse of the ‘preliminary budget,’ which – no matter how conservatively you set them up – never seem to cover the actual project cost.

Needless to say that we were cost-shocked! Who can afford this? If we would like this to become another pilot project that demonstrates the applicability of rehabbing an existing structure into a zero-energy home, we have figure out how to get the cost down to an affordable level.

Buying a foreclosure – Part 5

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Time is ticking away and we are trying to get a handle on what has to be put together, and when. Not an easy process if you are a first-time buyer. We finally (sort of) got a schedule from ShoreBank:

  1. Determine project budget
  2. Commission appraisal of property
  3. Take loan application to ShoreBank’s loan board for approval

Project budget

I scramble to put a budget for our green rehab together. We need to determine how much money is going into the green rehab to set the total loan amount (purchase price + rehab budget).

Fortunately we have our project rationales and principles in place to guide us through this process. We shared this information with developers, green building experts and friends that had rehabbing experience and could help us with our project budget development. We also contacted various specialists (such as energy experts), vendors (such as solar hot water), and contractors for pricing information.

Appraisal

Once we have the budget number, there is no guarantee that ShoreBank will lend us that much. The upper limit of the loan amount is determined by two factors. The first one – how much we feel we can take on – is controlled by us. The second is determined by an appraisal commissioned by ShoreBank. This appraisal takes into account all of our planned improvements to the house – it is a post-improvement appraisal.

Our worry is that the dollar amount of the post-improvement appraisal will be lower than our project budget. That would through a big old wrench into the process. We would need to conduct more pricing research to figure out how to cut our budget with the closing date fast approaching.

To get to the appraisal commissioned, ShoreBank was pressing for our project budget and I was able to deliver half a day early. That did not help us. It turned out that the appraisal would take longer than usual due to the sustainable scope of our rehab plans and the associated extra research.

Loan approval

ShoreBank’s loan board in Chicago currently meets once a week (every Thursday) to review and approve loan applications. Phil (our banker) worked hard on getting our application in front of the board as soon as possible. He needed the appraisal on Wednesday for the Thursday’s meeting. But unfortunately the appraisal arrived on Thursday and we missed this week’s opportunity to have our application reviewed.

The bad news is that this set us back a whole week to next Thursday. That is the same Thursday on which our closing should have taken place! The good news is that the appraisal was actually higher than our requested loan amount.

We now have to worry about pushing the closing date back again. We were not sure if the seller would just cancel the deal or go along with another extension. This is where we could rely as usual on Joe Ziccardi (our attorney). He managed once again to have the seller agree to the new closing date and to have any penalties for the delay waived. Thank you Joe!

We coordinated with ShoreBank to make sure that the new closing date was realistic: The seller had insisted that this was the last and final extension granted.

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