Budgets & Cost Codes – Allocating Costs (LDEV 663)

Vocabulary flashcards covering budgets, cost codes, cost categories, allocation methods (Specific Cost, Relative Value, Area, Front Foot), GAAP/FASB, soft vs hard costs, tracking costs, and related budgeting concepts in real estate development.

Budget

A financial plan estimating revenues and expenses for a defined future period to manage a project.

Cost Codes

Classifications of specific types of work within a cost category used to track project costs.

Cost Categories

Broad classifications of cost types used in budgeting and reporting (e.g., Clearing & Grubbing, Utilities, Paving, Engineering).

Specific Cost

Costs assigned to individual components based on exact identification of which part benefits from the cost.

Specific Identification

Assigning costs to the exact component when practicable (the Specific Cost approach).

Relative Value (Relative Sales Value)

Allocation of costs based on each lot's sales price relative to total sales price; more valuable lots receive larger shares.

Area Method

Allocation of costs based on area (square feet or acres) of lots; used when the allocation should reflect size.

Front Foot Method

Allocation of costs based on lot frontage width; not approved by GAAP for public companies; allowed for private developers.

GAAP

Generally Accepted Accounting Principles; standards used to prepare financial statements.

FASB

Financial Accounting Standards Board; the body that establishes GAAP and accounting standards.

Soft Costs

Non-tangible items such as design work, real estate fees, inspection fees, project management, and taxes.

Hard Costs

Tangible items such as utility improvements, paving, site work, detention ponds, and landscaping.

Contingency

A budgeted reserve to cover unforeseen costs or cost overruns.

Allocation of Costs

Distributing project costs to the parts that benefit to maintain a constant profit margin on sold lots.

Pro-rata

Proportional allocation of costs based on a chosen driver (value, area, frontage, etc.).

12-25 Cost Categories

Lenders typically require budgets to be organized into 12-25 high-level cost categories for reporting.

93 Cost Codes

An example showing detailed coding: 17 cost categories and 93 cost codes; illustrates depth versus breadth.

Tracking Costs

Method of monitoring costs across multiple contracts within a single cost code; PM may devise internal tracking to prevent budget overruns.

Phase Common

Costs that serve more than one development phase; allocated to phases as each phase closes.

Land Development Budget

Budget focused on costs for large builder/developer projects since revenue from lots is fixed; finance handles the revenue portion.

Cost Sharing / Reimbursables

Costs that may be shared among parties or reimbursed; included in the project budget.

Lenders

Financing entities; prefer high-level budgets with broad cost categories and summarized reporting.

Loan Budget

Budget prepared for lenders; emphasizes cost categories and total allocations.

Cost Category Example: Clearing & Grubbing

An example category representing initial site preparation, illustrating how categories group similar costs.