Real Estate Construction and Development Terms

Construction projects are subject to unforeseen challenges. Construction change orders can provide an avenue for the owner and contractor to modify the original contract. A change order is a formal document with four elements: the new work item, the reason for changes, adjusted cost, and the new estimated project completion date. Since a change order agreement alters the contract, all parties involved in the contract must sign off on the change order. [Read More]

During a construction project, many unexpected events can prompt the need for additional money. Construction contingency is an emergency fund for unspecified work to mitigate risk factors. A contingency can be made for designers, owners, and contractors with varying restrictions for withdrawing funds. A fixed-fee contract outlines the size of the fund before construction begins and the contractor can choose to use the fund or not. A cost-plus-fee contract sets a guaranteed maximum price (GMP) for which the owner covers and the excess a contractor pays for. [Read More]

Construction projects are not cheap. Construction loans provide the money to cover all the expenses that occur in a construction project i.e. land, materials, and permits. In contrast to mortgage loans, the money is given in payments over a period of time. A schedule of values can ensure the money for the project is used properly. Usually, construction loans have interest rates that run higher than mortgage rates as there is no collateral. [Read More]

Not all the costs of construction can be seen in the final product. General conditions lie in this expense category, soft costs, which are the temporary costs to build the project. The contractor outlines the general conditions needed to complete the project within the contract. The administrative and site management costs of a project fall under general conditions categories. Should more costs occur a change order or construction contingency can be used to supplement the needs of the contractor. [Read More]

Cash flow is everything in real estate. Construction development is no different in that cash flow helps the project move smoothly. A schedule of values ensures that the contractor receives cash from the owners and the owners see the progress of the project. A schedule of values in construction is a spreadsheet that outlines the work items needed to be completed for the project and the necessary capital for each task. [Read More]