The sale or transfer of commercial property, including apartment buildings, involves a series of complex analyses and decision points. Assessing the physical integrity and condition of the property itself is one such analysis that is key to the transaction. The parties involved in the sale or transfer of commercial properties rely on Property Condition Assessments (PCA) to provide information and analysis of the physical condition of a property, therein minimizing the risk associated with the transaction.
Until recently, assessing the condition of properties was completed under a variety of methods and specifications. National standards have now been established by ASTM to standardize the scope and methods used to perform Property Condition Assessments. ASTM Property Condition Assessment procedure E2018-01 is the current version employed and was last updated in 2001.
The purpose of E2018-01 is to define good commercial and customary practice in the United States for conducting a baseline PCA of the improvements located on a parcel of commercial real estate by performing a walk-through survey and conducting research as outlined within the guide.
In defining good commercial and customary practice for conducting a baseline PCA, the goal of E2018-01 is to identify and communicate physical deficiencies to a user. The term physical deficiency means the presence of conspicuous defects or material deferred maintenance of a subject property’s material systems, components, or equipment as observed during the field observer’s walk-through survey. This definition specifically excludes deficiencies that may be remedied with routine maintenance, miscellaneous minor repairs, normal operating maintenance, etc., and excludes de minimis conditions that generally do not present material physical deficiencies of the subject property.
Physical deficiencies can most efficiently be discovered through Forensic Engineering practices. By definition, Forensic Engineering Services can be specifically defined in the sense of property observations as the investigation of materials, products, structures, or components that fail or do not operate/function as intended. Generally the purpose of a forensic engineering investigation is to locate cause or causes of failure with a view to improve performance or life of a component. Most engineering disasters (building collapses, out of design anomalies) are subject to forensic investigation by engineers experienced in forensic methods of investigation. Simply stated, “Who best to discover existing or potential problems with the physical condition of properties than an engineer who knows the mechanisms of failure that can be independently evaluated to determine why components or assemblies fail in the first place?”
Another key component to the PCA is an Opinion of Probable Cost. The PCA provides opinions at various points including costs for changes or repairs that require immediate attention and costs to remedy physical deficiencies that need to be made within the first year or two. Although not outlined by ASTM, there is also need to provide a cost opinion to support long-range budgetary forecasting. All of these data are important to potential buyers and investors by providing essential information critical to the decision-making process.
As with selecting the right engineering expertise, knowing who is best positioned to provide the Opinions of Probable Cost is equally important. The party commissioning the PCA needs to understand that typical construction cost estimators may not be best equipped to prepare cost opinions for a PCA. Rather, the utilization of experienced Cost Engineers, certified in engineering economics, forecasting, and life cycle analysis is prudent. These Engineers should also understand forensic analysis as it relates to cost engineering disciplines.
Property Condition Assessments are standardized, the forms are readily available, and the firms who routinely perform these services are plentiful. The discriminator in whether the PCA is expertly prepared with sufficient analysis is dependent upon the qualifications and experience of the persons conducting the assessment. If you are planning a PCA for your next transaction, it is critical to choose your experts wisely. That choice may make the single difference in determining the potential viability of the investment.
Copyright 2006 Professional Investigative Engineers. All rights reserved.
David has over 25 experience in providing analytical business services to the construction, manufacturing, environmental, and government contracting industries. This experience encompasses all aspects of financial and business management disciplines, cost management, risk analysis and decision-making. David is a Certified Cost Consultant with the Association for the Advancement of Cost Engineering (AACE International), and sits on various review and development committees at the national level. He holds a Bachelor’s of Science degree in Business Management, is qualified as an expert witness, has made numerous conference presentations, and instructed and published articles on related topics. Other memberships include The National Contracts Managment Association, and The American Society of Professional Estimators. David has taken his expertise in estimating, cost analysis, scheduling and planning, and contract administration and applied those skills to solving problems of various complexities.
Mr. Norfleet has the designation "CCC" and "CFCC" after his name. What type of engineer is that? The CCC means "Certified Cost Consultant". This certification is given through the Association for the Advancement of Cost Engineering International (AACEI) and it is accredited by the Council of Engineering and Scientific Specialty Board and the International Engineering Council. There are two designations for certifications and the other is Certified Cost Engineer (CCE). The only difference is whether you have a degree in engineering or not. David's education is in business management so he carries the CCC vs. CCE designator.
The CFCC stands for "Certified Forensic Claims Consultant." This is an advanced, specialty certification designating a demonstrated and verifiable level of expertise as a claims consultant and expert witness. It is also given through AACEI, and Mr. Norfleet served as a member of the task force this certification is responsible for developing.
AACEI is dedicated to the tenets of furthering the concepts of Total Cost Management and Cost Engineering. Total Cost Management is the effective application of professional and technical expertise to plan and control resources, costs, profitability and risk. Simply stated, it is a systematic approach to managing cost throughout the life cycle of any enterprise, program, facility, project, product or service. This is accomplished through the application of cost engineering and cost management principles, proven methodologies and the latest technology in support of the management process.
Total Cost Management is that area of engineering practice where engineering judgment and experience are utilized in the application of scientific principles and techniques to problems of business and program planning; cost estimating; economic and financial analysis; cost engineering; program and project management; planning and scheduling; and cost and schedule performance measurement and change control.