Anyone thinking of building or buying a home will want to ask the question “How much does it cost per square foot?” This single metric is arguably the single most important factor for people choosing to buy or build a house. The answer can make or break a sale for a home builder.
But what is cost per square foot? It seems easy enough, but it is important to know what is, and is NOT included in the metric. Without a clear definition, you won’t be comparing apples to apples.
As an industry standard, the Cost Per Square Foot does not include the property. It also does not include outbuildings, digging a well, installing a septic system, or adding a basement. Spaces such as an outdoor deck and garage are typically not included in the square foot pricing.
When you are talking to a builder about a hypothetical house on a hypothetical lot, with hypothetical amenities – there a few assumptions to keep in mind. The cost per square foot should be based on a relatively flat developed lot and ready to build on. It has utilities to the property, does not have expensive design constraints, and uses standard materials. With this in mind, don’t be surprised if a builder gives you a range. It is a quick answer to a complex question. The more information that a potential client can give, the better the answer.
As the complexity, design, and budget gets bigger, the cost per square foot metric becomes less useful to a custom home builder. The range is so wide and varied that not much important information can be gleaned from it.
We have built 1800 SF homes and 10,000 SF homes. The difference per foot between the two is vast.
This metric works best for mass-produced homes where the plans are recycled and cost is the most important thing to the buyer. These types of homes usually have property restrictions that limit design and material differences – which make them much easier to compare. The math becomes more fuzzy as homes climb in price and there is more room to be creative and make atypical choices.
A better approach is to break the question down into several different components.
- How much does the General Contractor get paid? The best way in our opinion is the Cost-Plus contract. There is a separate line for the General Contractor fee. The cost of the house is passed to the client without mark-up. This will eliminate the incentive to cut corners, as well as overspend.
- How long have they been in business? What level of experience do they have? A good builder will have an excellent grasp on the process that will save money vs. someone learning the ropes for the first time.
- Are there signs that they are too expensive? Do they spend their money on the business to improve the product with things like tools, equipment, and trucks, or do they have expansive showrooms, a marketing team on the payroll, and swanky offices downtown? This is a more subjective question where you are trying to determine if the money you are spending will end up in your house or somewhere else.
- Ask if there will be mark ups on anything
- Ask to see an example budget. This will allow you to compare a price with an actual house and the amenities that went in to it.
- Do a spot check. Compare a couple labor items. What is the typical labor per foot to install hardwood flooring? How much does a plumber cost per fixture? What is a tile floor cost per foot? Sourcing materials is a pretty level playing field. The question is more about the quality of work at a reasonable price.
At the end of the day, you need more than just one qualifier to choose a builder. Remember, you have to work with this person for the next 9 months while they build your dream home. You need a team mate who will have your back.