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Building Fees – Based on Valuation or Square Footage?

Writer's picture: Eric JohnsonEric Johnson

Building & Safety fees for new construction have historically been charged based on the construction value of the work being done.  This is a longstanding practice that comes from the fee tables published by the International Conference of Building Officials (ICBO), now the International Code Council (ICC), to help local agencies set their fees.  While there have been legal challenges to valuation-based fees, they have been upheld by the courts as long as the resulting fees do not broadly exceed the costs.

 

But some agencies were concerned about legal challenges or about the fairness of valuation-based fees, and they started using a fee schedule based on construction type and square footage.  For instance, the construction of a new single-family home of 3,000 square feet would be charged one permit fee, while the construction of a new office building of 3,000 square feet would have a different permit fee, even though they are the same sized building.  They would still have to show that the resulting fees do not broadly exceed the costs, but you don’t have to determine the construction costs of each 3,000 square foot building to determine the fee.

 

So which type of fee schedule makes the most sense for your agency? 

 

Broadly speaking, if your agency sees a lot of high-end luxury construction, then a square footage model is probably fairer to the customer.  This is because more of the construction value will be comprised of more expensive materials, such as countertops, roofing, and flooring, that don’t take more time to plan check and inspect.  But they would count as extra construction value, and therefore, increase the permit fee.

 

If your agency sees more construction with standard materials, then valuation-based fees are more likely to be fair to the customer.

 

But, with either model, the fees need to fit in with your costs and the type of construction.  For instance, a $100,000 development with more high-end materials would probably take less time to plan check and inspect than a $100,000 development with more standard materials.  These factors need to be considered when the fees are developed.

 

Other factors to consider when deciding on the model that works best for your agency:

 

-          How often are fees updated?  Valuation fees are easier to update from year-to -year by updating the Construction Value Data table by inflation, which does not require a change to the fee schedule.

-          What model are your customers more comfortable with?

-          Will the model work with your permitting software?

-          Are there often disagreements with the customer about the true valuation of the construction?  The square footage model removes those discussions at the counter.

 

In conclusion, either model is legal if it broadly does not exceed your costs.  So, focus on which model best fits your community and is fair to your customers.

 

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