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FEBRUARY 2011 C.O.D.E. C O N S T R U C T I O N O V E RV I E W A N D DATA E XC H A N G E Insuring Buildings on a Value Basis What is a Value Basis of insurance and why does it matter? Property insurance contracts contain Welcome to the second issue wording that defines how much an insurer is of the CODE – Construction Overview and Data Exchange. obligated to pay for a loss, and that depends upon It is our intent to share with what basis the value of the policy was derived. you our knowledge of the construction industry including the latest building trends, market pricing variations, what’s happening with building materials, labor wages, and various other data points that may impact your business. We will publish six issues a year and future issues will cover a variety of subjects, such as building codes, housing statistics, government indicators and economic trends. Every issue will answer FAQs and highlight specific subjects requested by you in the Ask the Pros section. As the Building Cost People, it is our pleasure to share our in-depth knowledge and data with you. Enjoy! – Norrine Brydon Vice President, Data Asset In this Issue: • Insuring Buildings • New Energy Code • Energy Efficient Walls • Ask the Pros • FAQs • Data Points MSB provides valuation results for three distinct value bases: Actual Cash Value, Replacement Cost New, and Reconstruction Cost. Definitions Actual Cash Value: The cost to repair or replace the damaged property with materials of like kind and quality, less depreciation. The value is related to the age, present condition and suitability for use of the asset. The worth of a building or structure is found by looking at the wear and tear from use, structural defects, building service deficiencies and exposure to elements. • loss of economies of scale associated with one-off new construction Replacement Cost New: The cost to replace an equally desirable substitute structure, having the same function or purpose as the original, without necessarily reproducing exactly the same characteristics of the property, but using today’s materials, labor, and building techniques. • higher costs for trades and premium prices for materials Reconstruction Cost: The cost that would be incurred in constructing a replacement having exactly the same characteristics as the original improvement. It might be impossible, impractical, or unacceptable today to use the original materials or methods, so many policies allow near-exact reproduction. A good way to think of the reproduction costs incurred, is to think about reconstructing a designated historical building. The Reconstruction Cost valuations in MSB tools include site-specific and process-related costs that would not be included in Replacement Cost New valuations, such as: Marshall & Swift/Boeckh LLC © Copyright 2011 Marshall & Swift/Boeckh • extra costs due to site accessibility and limited site mobility • the usual sequence of events in the building process may have to be altered when reconstructing after a loss • extraordinary fees and other contingencies • retrofitting new systems to undamaged building components or mechanical systems below grade level • time urgency required to mitigate Business Interruption and/or Additional Living Expenses losses • presence of dangerous/hazardous materials and/or mold concerns (but not including remediation costs) • consideration for adjoining non-construction areas or insured’s undamaged property on site Each value basis has a purpose, and what matters is the context in which the resulting value will be used. A user of a valuation tool must be aware of the implications of choosing a value basis and must select the one that best meets the requirements of the policy. US Issue C O N S T R U C T I O N OV E RV I E W A N D DATA E XC H A N G E Future Energy Code Requirements Industry experts estimate that buildings consume as much as 40 percent of all the energy consumed in the United States. In an effort to improve the energy efficiency of buildings, many state and municipal governments have adopted a model energy efficiency code, called the International Energy Conservation Code (IECC). The IECC was created in 2000 by the International Code Council (ICC), a U.S. based non-governmental organization with government members from around the world. The IECC is updated every three years, 2009 being the most current edition. The commercial and residential sections of the proposed IECC 2012 code will achieve the goal of using 30 percent less energy for new buildings versus those built using the 2006 standard. Some of the changes to the residential and commercial code include: • Sealing and testing of HVAC ducts • Increasing insulation R-value in walls, ceilings, windows and foundations • Improving lighting efficiencies/day-lighting controls • Reclaiming wasted energy from hot water systems • Commissioning and validation of mechanical systems The IECC 2012 code will be up for adoption by municipalities over the coming months and years. The process is different for each state where some have adopted an older code or none at all. Sixteen states already meet or exceed 2009 IECC. The Building Codes Assistance Project tracks the status of energy codes used within the United States. The map depicts the status of the code in use for each state. • Making commercial buildings more air tight by requiring continuous air barriers Residential State Energy Code Status AS OF JANUARY 1, 2011 State/territory residential energy code status as of January 2011: Residential State Energy Code Status as of January 1, 2011 NH VT * • 14 with no state-wide code or precedes 1998 IECC MA RI CT NJ DE MD DC * • 8 meet or exceed 1998-2003 IECC * • 17 meet or exceed 2006 IECC AS GU MP • 16 meet or exceed 2009 IECC PR VI * meets or exceeds 2009 IECC or equivalent meets or exceeds 2006 IECC or equivalent meets or exceeds 1998-2003 IECC or equivalent no statewide code or precedes 1998 IECC state has adopted a new code NOTE: mandatory statewide codes Get all the most up-to-date code status maps and other valuable resources at www.bcap-ocean.org Increasing the energy efficiency of building systems has many wondering what it is all going to cost. Current data on buildings that have already incorporated Green design practices have demonstrated a 20-30 percent energy savings while averaging a cost premium of 1 – 2 percent. MSB continues to track energy code changes by state and to incorporate new standards into our products to accurately represent changing construction and methodology costs. M a r s h a l l & S w i f t / B o e c k h © Copyright 2011 Marshall & Swift/Boeckh page 2 C O N S T R U C T I O N OV E RV I E W A N D DATA E XC H A N G E Energy Efficient Wall Systems The ancient Greeks and Romans understood the value of thermal mass to regulate internal temperatures in their shelters. Early stick-frame dwellings in cold climate areas of North America purposely left cavities created by stud framing uninsulated, hoping the trapped air would act as an insulator. Sometimes it did; but most often it did not and air leakage caused drafts It was not until the oil crunch of the 1970’s that designers in the U.S. started taking seriously the necessity of better insulation. Today, we use thermally resistive thinwall design to moderate temperature and control energy loss. Today, that wall cavity is filled with insulation, the building envelop is sealed tightly, and buildings are becoming “super- insulated.” Building super energy efficient homes, whether for cold or hot climates, requires walls constructed with higher insulation standards with R-Values in the 40’s. So what are the advantages of a super insulated home you ask? How about lowering the heating load by as much as 90 percent, without needing high-efficiency mechanical systems? • Super-insulated homes come in two types today: • Passive Home • Net-Zero Energy Home (NZEH) , or Zero Energy Building (ZEB), as it is sometimes called. Passive Home design results in a ultra low energy building requiring little energy for space heating and cooling. A ZEB generates energy, and over a year does not use more energy than it generates. Passive House and ZEB are complementary synergistic technology approaches, based on the same physics of thermal energy transfer and storage: ZEBs drive the annual energy consumption down to zero from the already low Passive Home with help from on-site renewable energy sources. M a r s h a l l & In the case of Passive Home designs, a furnace is not required at all. The concept is actually quite simple: Super insulated homes • Build 12 inch wall cavities filled with insulation air quality and use less • Use triple glazed, gas filled windows energy. Lowering the • Make it air tight while managing moisture demand for energy • Recover and reuse the heat Ok, this is oversimplified, but truth be told, it is not that difficult to achieve a Passive Home or ZEB. The cost premium directly relates to the experience of the designer and builder in constructing the level of envelope quality this type of super insulated home requires. Katrin Klingenberg of the Passive House Institute US, estimates the cost to build a super-insulated home is about 10 percent more than one using current building standards. There are several different methods available to achieve the walls of super insulated homes, such as: Double Wall Construction; Passive House Method; Larsen Trusses; Exterior Foam Insulation; Structural Insulated Panels. are more comfortable, provide better indoor makes super insulated homes more appealing (reduction of 90 percent heating load!!). As energy conservation needs increase, the “super insulated” home concept may well be the path green buildings ultimately take. S w i f t / B o e c k h © Copyright 2011 Marshall & Swift/Boeckh page 3 C O N S T R U C T I O N OV E RV I E W A N D DATA E XC H A N G E Check to make sure that any worker, whether a window installer, a painter, or a renovator, is trained and certified under the Lead-Safe Program administered by the United States Environmental Protection Agency. Ask the Pros: Lead Paint Remediation in Older Homes If there is a subject or topic that you would like to see discussed, please email us at [email protected] Lead-based paint was used in more than 38 million homes until it was banned for residential use in 1978. According to some industry experts, an insurer could be considered a contractor by managing more than one contractor firm, which can make the insurer legally responsible for the health and safety of workers on a restoration job that involves hazardous materials. Usually, the culprit in question is asbestos, but lead paint can also be a problem. Adjustors are usually advised to check with occupational safety and health administration to figure out how to avoid liability. Total losses involving fire will result in the vaporization of lead paint, making cleanup virtually impossible. In a total loss situation, debris containing hazardous material is removed in bulk and particulates may be contained using dust control methods, such as wetting. Repair work performed in partial losses and in areas containing lead paint involves careful removal and storage of blistered or peeling paint in the immediate vicinity of the damage, or adjacent to fire damaged areas. Wetting down of these Age of Homes Percentage of Homes Likely to Contain Lead When dealing with losses in houses containing lead paint, the best advice is to hire a contractor experienced and certified in lead paint removal. Check to make sure that any worker, whether a window installer, a painter, or a renovator, is trained and certified under the Lead-Safe Program administered by the United States Environmental Protection Agency. MSB’s IntegriClaim tool displays a list of items that can apply to dealing with costing hazardous waste disposal, such as lead paint testing before and after restoration, containment and air-lock chambers, and bagging and removal of materials. Lead paint removal can be treated the same as asbestos removal to capture that cost using the MSB tools. 24% Between 1960 - 1978 69% Between 1940 - 1960 87% Before 1940 10 M a r s h a l l areas helps control dust dispersal that could impose a health hazard after reconstruction, especially to children. Some inexperienced contractors may use torches to melt and scrape paint from surfaces, and this is highly dangerous due to the vapours produced. & 20 30 40 50 60 70 80 90 100 S w i f t / B o e c k h © Copyright 2011 Marshall & Swift/Boeckh page 4 C O N S T R U C T I O N OV E RV I E W A N D DATA E XC H A N G E FAQs How to Calculate Total Living Area in RCT Total Living Area is a term specific to MSB and RCT. The official MSB definition of TLA is “the area of the main home in square feet (SF), plus each section or wing, based upon exterior dimensions. TLA includes the area of all floors and built-in garages, but does not include the area of the basement, porches, breezeways, balconies, decks or attached garages.” Calculation of TLA uses exterior dimensions, never room or interior measurements. TLA includes the area on all floors, excluding the basement. The area of a tall or two-story foyer should be included only once in the calculation, in the floor area of the main floor only, and should not be included in the upper floor area. The area occupied by stairways should be included in each floor serviced by the stair. Areas that protrude beyond the surface of the exterior wall, such as chimneys, fireplaces, windows or balconies, should not be included in TLA. Total Living Area should also include the area of built-in garages. By definition, a built-in garage is placed into the residence at the first floor or grade level, and has living area above the garage and on at least one or two sides of the garage. A one story home cannot have a built-in garage. Total Living Area should exclude the area of a basement; finished or otherwise. A Finished Basement is one that has: drywall or other wall finish installed over insulation around basement perimeter; interior partitions with drywall or other wall finish; passage doors; finished ceiling; carpet, vinyl tile or other floor finishes; electrical outlets and lighting; and a heating system. Enter basement information at Foundation Type in RCT; go to Additional Information to enter Finished Basement information. Also, TLA should exclude the area of a finished attic. A finished attic is defined as the “build-out” of the space immediately below a roof that does not have adequate roof pitch/slope or ceiling height to qualify the property as a half or threequarter story dwelling. Minimal partitions and an inexpensive grade staircase to access the space have been provided. Most likely, this space will not meet most definitions of living area. Finished Attics can be found on the Interior Features tab, at Other Interior Items. The accuracy of the replacement cost produced in RCT is dependent on the entry of accurate information and we know that one of the most common user mistakes is the entry of TLA. We hope this helps! How to handle different types of Garages Attached Garage: Enter TLA of home plus select ”Attached” garage Detached Garage: Enter TLA of home plus select ”Detached” garage Note: Detached Garage will be handled as a separate structure Built-in Garage: Enter TLA of all levels of home plus add the SF of the built-in garage space Note: RCT will automatically calculate the finished Floor Area (FFA) by excluding built-in garage to perform cost calculation Basement Garage: Enter TLA of home plus select “Basement” garage Carport: Enter TLA of home plus select “Carport” A garage connected to the main home by a breezeway may be considered an attached garage depending on individual carrier underwriting guidelines. M a r s h a l l & S w i f t / B o e c k h © Copyright 2011 Marshall & Swift/Boeckh page 5 C O N S T R U C T I O N OV E RV I E W A N D DATA E XC H A N G E Data Points Commodity Watch: Copper Prices US Factoids The price of copper rose from $4.35 per pound to $4.50 per pound between January 14 to February 11, 2011, as reported by the London Metal Exchange. LME Copper – Settlement 90 Days - $/LB 4.75 Copper imports by China grew by 5.7% in January and copper reached a record $10,160 a ton February 7. Some analysts predict aluminum will replace copper in some applications, driving prices higher for that metal. 4.50 4.25 4.00 Copper is used in construction products such as: lighting, wiring, plumbing, metal roofing, hanger nails and fasteners, flashing, and control joints. Copper alloys produce brass and bronze, each used in a wide variety of architectural and engineering products such as valves, hardware, and decorative elements. 3.75 3.50 11 Nov, 2010 - 10 Feb, 2011 Metalprices.com Gas Trends US (G) Canada (L) Feb 22 2011 $3.17 C$1.13 Dec 22 2010 $2.98 C$1.09 Gasoline prices continue to rise. The three-month average percentage change for the U.S. was 6.3 percent, while Canada’s prices rose 3.6 percent. Year-over-year average percentage changes were 19.1 percent for the U.S. and 14.1 percent for Canada. Fuel throughput charges and fuel taxes raise the price of construction goods and services delivery, and create inflationary wage pressure. One Year $2.66 C$0.99 Fuel prices impact construction costs in 3 ways: Regular Gasoline Average Prices 1) Impact on petroleum-based products including plastics, cement, gypsum, roofing materials, PVC piping, siding, asphalt; Current Trend Steady Decrease 2) Materials that are transportation-intensive such as lumber will have pricing pressure during periods of rising oil prices; Increase 3) Materials that require large amounts of energy to produce, such as steel, are also impacted by fuel prices. Building Stats Dec-10 Jan-11 Housing Starts 520* 596* 14.6% Building Permits 627* 562* -10.4% Description % Change Housing starts for January 2011 improved 12.6 percent since November 2010 and 14.6 percent over December’s numbers. Building intentions continued to drop, however, with building permits decreasing -11.5 percent since November 2010. • The average age of owner occupied housing in the United States is 35 years. (Source: U.S. Census Bureau) • As of December 2010, 15.7 million homeowners had negative equity in their homes. The total represented 27 percent of mortgaged single-family homes. The median value for a U.S. single-family home was $175,200 in the fourth quarter, down 2.6 percent from the end of September and 5.9 percent from a year earlier. Values have fallen 27 percent from the June 2006 peak. (Source: Zillow) • Nationwide, housing starts declined 4.3 percent to a seasonally adjusted annual rate of 529,000 units in the final month of 2010, according to newly released figures by the U.S. Commerce Department. While this was the slowest pace of starts activity since October 2009, the year-end data indicate that production of new homes improved 6.1 percent in 2010 from the previous year. * thousands U.S $6,700 Jan-11 Dec-10 Nov-10 Oct-10 Sep-10 Jul-10 Aug-10 Jun-10 Apr-10 Marshall & Swift/Boeckh LLC May-10 Mar-10 Jan-10 Feb-10 Publisher:Guy Kopperud, 25 years experience as a manager $6,600 within $6,500the building industry. Expertise in construction code and building practices. Construction Defects Expert. Certified $6,400 B$6,300 -General, California Licensed General Contractor ,Certified $6,200 HERS Rater, CHEERS Core Module/Energy Auditor CIE, IAQA $6,100 Indoor Environmentalists, Certified EIFS Inspector, Certified $6,100 EDI ,Certified Real Estate Inspector Publisher:Glen Wither, 32 years in the construction and building information industry. Practicing architect. Contractor. Expertise in housing data and construction cost research, remediation specialist and professional services including insurance risk evaluation and federal housing rehabilitation design and project management Editor: Norrine Brydon www.msbinfo.com Phone: 800.809.0016 Marshall & Swift/Boeckh 2885 S Calhoun Road New Berlin, WI 53151 © Copyright 2011 Marshall & Swift/Boeckh