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Is Construction Contingency Just Extra Profit?

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    #2
    Graham
    Moderators, Society & Culture Moderators Posts: 17,642 Mod ✭✭✭✭Graham


    Timing belt wrote: »
    Can someone please explain why a contingency is included in the cost of building an apartment when there is already a profit margin included?
    (see page 22)

    :confused:

    A developer that uses their profit margin to cover contingencies isn't going to be developing for very long.


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    #3
    Timing belt
    Registered Users Posts: 3,510 ✭✭✭Timing belt


    Graham wrote: »
    :confused:

    A developer that uses their profit margin to cover contingencies isn't going to be developing for very long.

    And if they don't use the contingency it is 100% profit.... So it comes down to how well the developer manages the project right?


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    #4
    Graham
    Moderators, Society & Culture Moderators Posts: 17,642 Mod ✭✭✭✭Graham


    Timing belt wrote: »
    And if they don't use the contingency it is 100% profit.... So it comes down to how well the developer manages the project right?

    I guess you could say that if a developer is good at foreseeing unforeseen expenses he'll have accounted for the unforeseen items in advance so the costs of those otherwise unknowns will be known and accounted for with a larger initial build budget of known rather than unknown amounts.


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    #5
    Timing belt
    Registered Users Posts: 3,510 ✭✭✭Timing belt


    Graham wrote: »
    I guess you could say that if a developer is good at foreseeing unforeseen expenses he'll have accounted for the unforeseen items in advance so the costs of those otherwise unknowns will be known and accounted for with a larger initial build budget of known rather than unknown amounts.

    Is that not the risk he is taking in developing the property and with the risk comes reward in the form of profit.

    For example If I was buying a product to sell on i would price this risk in my profit margin and not have a separate contingency line. For me it is just a way of reducing the profit margin so they don't look so greedy.


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    #6
    Browney7
    Registered Users Posts: 3,100 ✭✭✭Browney7


    Timing belt wrote: »
    Is that not the risk he is taking in developing the property and with the risk comes reward in the form of profit.

    For example If I was buying a product to sell on i would price this risk in my profit margin and not have a separate contingency line. For me it is just a way of reducing the profit margin so they don't look so greedy.

    I'd interpret it as the profit margin plus the contingency would be a "loss free profit" so to speak. If the expected level of unforseens accrue they'd make the profit margin and if the level of actual unforseens exceeds the expected level it would start to eat into their profit.


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    #7
    Graham
    Moderators, Society & Culture Moderators Posts: 17,642 Mod ✭✭✭✭Graham


    Mod Note

    interesting topic but not particularly new to property market 2021 so I've split into a thread of its own.


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