Design, Construction, and Costs.
Types of builders: Many builders go to market with different services and products.
A “production” builder builds the same portfolio of plans over and over again. They purchase large tracts of land and develop entire neighborhoods. A production builder will limit the amount of variations that may be made to their product and can most quickly quote a price for their product. They have fixed standards with few variables. Their economies of scale typically enable them to offer the lowest cost per square foot. For example, they can amortize design cost and large scale purchasing over hundreds (if not thousands) of homes built from a single home design and finish package.
A “semi-custom” builder typically offers a wider variety of home designs and finishes for your home. Such builders will often modify their home plans and some finishes to suite your needs. They may initially provide a general cost per square foot, but ultimately the cost for changes will escalate that price. The final price for your new home will most likely leave you feeling like you have paid a premium for a home on which you have made significant compromises.
A “custom” home builder may never build the same home twice. There isn’t always historical costing data from a specific home to look back on and use as a starting point. Knowing that custom home buyers often have specific products and amenities in mind, providing a cost per square foot before the plans and details are defined, can lead to disastrous results. Unfortunately, many of us know someone who has had a bad experience building a home. But, do not fear! Not all builders are alike!
Custom home cost calculation factors:
A one-story home with 2,000 square feet of finished living space has a foundation under the entire 2,000 square foot home and a 2,000 square foot roof over a single finished floor of living space. This is the same foundation and roof for a 4,000 square foot two-story home. It is just missing the second story, which doesn’t cost a lot when the roof and basement are already there.
A two-story home with 1000 square feet of finished living space on the main floor and 1000 square feet of living on the second floor will have a smaller, less expensive foundation and roof. So, even though the finished square footage of the two homes is identical, two story homes will cost less per square foot to construct, due to the smaller foundation and roof.
Some costs are constant regardless of the size of the home. Impact fees and some government fees, such as utility hookup fees, are typically unaffected by the home’s size. A smaller home will still have a kitchen with all of the same appliances, and often the same number of bathrooms as a larger home. Generally, smaller homes have a higher cost per square foot assuming finish levels are comparable. This is especially true when building a home less than 2000 square feet with a garage. The cost impacts of kitchens and baths remain, with fewer square feet to divide the cost by.
Calculating what you should pay for your new custom home?
Why, that is easy, right? Simply divide the price by the square footage and you’ve got a concrete number. It’s uncomplicated. And who isn’t looking to simplify a purchase as important as your home? It is a straightforward and easy way to compare homes. Unfortunately, it is anything but simple.
Methods of Pricing a New Custom Home – that do not apply to a “custom-built” home.
Many builders measure a home’s size from the outside of the wall framing. Other builders measure to the outside of the siding material. With these variances, an all brick home calculates to be hundreds of square feet larger than the same sized home with the lap siding.
Is the second story area of a 2-story high entry foyer or great room included in the footage calculations? It is heated space and can be a beautiful area in your home, but it isn’t walkable square footage.
How about the staircase and its openings? Were they counted once or twice, depending on stories?
Was the basement included? If so, all or only finished living space?
How about attic spaces? What if the attic has a sloping ceiling and you can only stand up in the small portion of that attic? Typically, in today’s market, attics are generally unusable.
Do you include a homes’ three season room, porch(s), deck(s), or patio(s)?
What if outdoor decks and patios are covered by a roof?
Is the garage included? Obviously garages are not free and affect the cost per square foot to build, just like porches, decks, and patios.
Cost per square foot comparisons are meaningless if the square footage of these areas is counted differently by various builders. So, be careful when comparing home building costs by “square foot” costs.
Cost is driven by design: Pricing a custom home.
Design has a strong bearing on a home’s cost. Design and functionality, and the home’s “livability” doesn’t necessarily correlate to higher square footage area. Good design may provide a smaller, more cost-effective home with just as much “livable” space as a larger home.
Elements that create curb appeal such as roof lines, windows, grand entryways and accent materials, cost more but do not add to a home’s square footage. So, these elements do add cost per square foot when calculating this way.
Inside, there are almost too many variables to count that impact a home’s cost. Take ceiling heights for example; 10’ or taller ceilings or vaulted ceilings increase the cost compared to homes with standard 9’ or 8’ flat ceilings.
The expense of the home plans are another consideration. Pre-drawn plans might provide a low cost for purchase and licensing, but it is not advisable to purchase plans off of the internet and try to adapt them to your project and local area building codes. The unknown expenses you may absorb to bring those plans into compliance often easily exceed the savings over engaging a local person to draft drawings specific to your build and jurisdiction.
What is included in the price?
Some “custom” builders will base their cost per square foot number on their “standard” materials.
Builder A includes hardwood flooring.
Is this flooring prefinished or finished in place? 5” wide plank or 2 ¼” wide plank?
Builder B includes carpet flooring.
What grade is the carpet and padding?
Builder C includes granite countertops.
What price per square foot? What thickness? What edge? Do they include the sinks?
Does your price include landscaping? Sod, or just grass seed, or neither?
Is the asphalt driveway included or just the driveway apron? Or neither?
Don’t laugh! If you do not ask these questions, you may assume incorrectly and be in for a big expensive surprise!
Did the cost per square foot quoted include the home site? A $25,000 lot represents $12.50 per square foot for a 2000 square foot home. But, if you are building that same home on a $60,000 lot, the home site equates to $30.00 per square foot. That is $17.50 more per square foot for the cost of the same 2000 square foot house.
If building in a subdivision, Covenants and Restrictions may impact your build costs. If subdivision Covenants require a full masonry front elevation for example, the home will cost more than if it were built with a vinyl siding product on the front and perhaps a masonry accent.
Home Site Improvement / Lot Finishing Costs:
Many, if not most, custom homes are built upon individual properties, or “spot lots”. The expenses to improve or complete the land development can drastically impact the cost to build.
Engineering and surveying, driveways, the installation of power and communication lines, tree clearing, and well and septic installation can each individually cost thousands of dollars, and collectively cost tens of thousands of dollars. So, if your overall build budgets do not consider the land improvements, the cost to build your entire home project may be grossly underestimated.
So, be very careful when you are interviewing builders for your new home project. It can be difficult to get “apples to apples” comparisons if you don’t know what to ask them.