Buildings depend on various engineering systems to function properly and their condition is not always evident when a building is rented or purchased. There are cases where maintenance problems are easy to detect due to their negative aesthetic impact, for example when a wall has cracks or its paint has peeled over time. On the other hand, the main issues related to the main construction systems tend to be hidden and can only be detected if the property is evaluated by qualified engineering professionals.
An assessment of the condition of the property can be an excellent opportunity to also carry out an energy audit: as the building will be analyzed in depth, it is a good opportunity to detect opportunities to reduce or manage energy consumption.
It is generally cheaper to resolve a problem before it causes the failure of a major building system, which means that a PCA can be considered an investment – the savings achieved through early problem solving more than offset its cost.
Benefits of a PCA for the building buyer or tenant
Before renting or purchasing a building, it is very important that you get a detailed overview of its current condition. If this step is ignored, you risk facing considerable expenses in the future:
- If you purchase a building that has been poorly maintained or where the main equipment is reaching the end of its useful life, you may have to incur significant expenses in the short term.
- The same applies to leasing: tenants are often responsible for the maintenance of the building and can be held responsible for previously existing conditions if they do not evaluate them.
With a pre-lease engineering report, you can only be held responsible for problems that occur when the building is in your responsibility. On the other hand, if a previously undetected problem arises after you have rented a space, you will have no way of proving that it already existed – the associated expenses can be significant for large equipment such as generators and compressors.
Buying a building with a loan
Companies normally take out loans to purchase real estate, even if they have capital available. The reason is simple: it is generally more profitable to reinvest capital in business operations than to spend a large sum on a building.
When a building is acquired through a loan, banks want to be sure that the asset is in good condition as it serves as collateral for the loan. However, if the building has major problems, little value can be gained from it. For this reason, a property condition assessment (PCA) is often mandatory before the loan can be approved.
Benefits of a PCA for the building seller or landlord
Assessing the condition of the property offers benefits to both parties involved in a transaction, regardless of whether the building is being sold or rented. They are often paid for by the tenant or new owner for self-protection, but they can also benefit the original owner.
- When buildings are sold, PCA can help assess the value of a building – a higher price may be charged if there is evidence that the building's structure and major systems are in optimal condition. The PCA also protects the seller from claims if there are issues attributable to the buyer.
- In the case of leasing, a PCA provides a basis against which the condition of the building can be assessed. It helps define the scope of repairs that must be carried out by the tenant, especially at the end of the lease.
Basically, a PCA reduces risk for real estate investors. Unwanted surprises are less likely if the building has been properly assessed by a qualified team of engineers.
ASTM E2018-15: The Standard for Property Condition Assessments
The American Society for Testing and Materials (ASTM) published the first version of the ASTM E2018 standard in 1999, and two revisions were carried out in 2008 and 2015. The standard addresses PCAs in detail, but the process can be summarized in four main steps: Revision documentation, site survey, cost analysis and property condition report.
The primary reason for updating ASTM E2018-15 was to simplify the framework while increasing its effectiveness as a guide for assessing risk associated with construction conditions.
Documentation Review
A PCA can be carried out more effectively if the relevant documentation is reviewed first, because consultants can then proceed with the site survey with a better idea of what to expect and what areas to focus on. The following are examples of important documents that should be reviewed during this phase:
- Construction plans
- Technical specifications
- Equipment Data Sheets
- Maintenance reports
- Consulting reports
In short, any document that helps to have an accurate view of the condition of the building is useful at this time. As a complement to the documentation review, key employees should be interviewed, especially those from the maintenance and engineering departments.
Location search
Once documentation has been reviewed and key personnel have been interviewed, the consulting firm can proceed with an on-site survey. The objective is to provide a detailed assessment of the main construction systems, such as:
- Foundation and structural integrity
- Roof
- Building envelope
- Exterior and interior finishes
- HVAC, elevators and other mechanical systems
- Plumbing
- Electrical installations
- Computer and telephone installations
- Fire extinguishing systems
With information collected from documentation, interviews and direct inspection, it is possible to estimate future maintenance costs and detect problems that require immediate attention.
Cost analysis
Technical analysis is important, but there are two additional questions that every client will want an answer to:
- What is the cost associated with each problem detected?
- When will the costs be incurred? Is any problem urgent?
In other words, the client will want to know what needs to be done, when it should be done and how much it will cost. Of course, a professional consulting firm will also suggest the most cost-effective way to remedy each problem detected.
Property Condition Report
The Property Condition Report (PCR) is the end result of a PCA and provides important information that is of interest to both parties involved in the lease or sale: A detailed outline of the condition of all building systems, the cost associated with each of the detected problems and a classification of urgent and non-urgent matters. Urgent or immediate costs are those associated with problems that cannot wait due to their potential consequences:
- Unsafe conditions, existing and latent.
- Building code violations.
- Fire code violations.
- Any problem that could cause the failure of a critical building system within one year if not attended to.
- Any issue that will see a drastic increase in costs if left unattended.
In the 2015 edition of the standard, three new terms were added to describe the condition of each item:
- Good condition: The system is working properly and will not require repairs in the short term.
- Fair conditions: The system works, but will probably need repairs soon.
- Bad condition: The system is not working and must be repaired as soon as possible.
Final Observations
Whenever a building is sold or rented, carrying out a Property Condition Assessment (PCA) is in the interests of both parties. For the building owner, the PCA provides a reference point for future assessments; and, at the same time, protects the buyer or lessee from having to assume costs arising from previously presented conditions. In short, a PCA reduces the risks associated with selling or leasing buildings and is typically required by financial institutions whenever a loan is involved.
If you are performing a PCA for a property, be sure to work with a consulting firm that meets ASTM 2018E-15. This way, you can be sure that PCA is performed with a tried and tested methodology.
