Custom Home Building 101

Methods used to calculate square footage differ.

  • Some 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 may be hundreds of square feet bigger than the same exact home with a lap siding.
  • Was the second story area of a 2-story high entry foyer included? It’s 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? These differences in calculating total square footage return a different cost per square foot.

What square footage was included?

  • Was the basement included – all of it or just the portion of the basement that’s finished living space?
  • How about the attic spaces? What if the attic has a sloping ceiling and you can only stand up in a small portion of that attic?
  • Finished space in a basement or attic is typically much less expensive than finished footage on the main floor of the home.  Why? The foundation, walls and roof are already there.  If the price per square foot of the home was calculated based on “finished” square footage, that figure is typically lower for homes with finished basements and/or attic space.
  • Do you include a home’s three-season room, porches, deck, or patio?

  • What if those outdoor spaces are covered by the roof?  If the garage is not included in the home’s reported square footage, then a bigger garage won’t affect the price per square foot because those square feet don’t count, right?  So, why not build a 4-car garage? Obviously garages and decks aren’t free.

Cost per square foot comparisons are meaningless if the square footage of these areas are counted differently by various builders.

Land Cost:

Did the cost per square foot quoted include the home site?  A $25,000 lot represents $12.50 per square foot for a 2,000 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 – $17.50 per square foot higher!

Even the neighborhood can impact your cost per square foot.  If subdivision covenants require a full masonry (brick/stone or stucco) front elevation, the home will cost more than if it were built with vinyl siding on the front.  Community amenities such as walking trails, pocket parks, clubhouses, pools, etc., all have a cost which is passed along to each homebuyer in the form of higher prices for the building lot.

Cost is driven by design:

Though design has a strong bearing on a home’s cost, design, functionality, and a home’s livability don’t necessarily correlate to square footage.  In fact, good design can often save you money when, for instance, you can eliminate long hallways and actually reduce the home’s square footage.

Outside, sophisticated rooflines and grand entryways cost more but don’t add to a home’s square footage, so such homes cost more per square foot.

Inside, there’s almost too many variables to count that impact a home’s cost, but don’t affect square footage.  Take ceilings for an example – many new homes feature 9-foot high or taller ceilings, tiered or vaulted ceilings, and artful ceiling details.  Such ceiling amenities increase the cost per square foot compared to homes with standard, 8-foot flat ceilings.

Every corner in a home’s foundation costs more, so simple rectangular foundations reduce a home’s square footage cost compared to homes with numerous foundation jobs.  Carpet typically comes in 12’-wide rolls, so designing a room 12’8” wide is more expensive due to the added labor costs for cutting and seaming the carpet and the increased material waste.

Then there’s the cost of the home plans.  Pre-drawn plans might cost $1,000, about $.50 per square foot for a 2,000 square foot home.  Custom drawn plans typically range from $3 to $10 per square foot.

What’s included in the price?

Some builders usually base their cost per square foot number on their “standard” materials.

Builder A includes hardwood flooring.

Builder B includes carpet.

Builder C includes full sod and a generous landscaping allowance.

Builder D only includes grass seed in the yard.  Was an asphalt driveway included?

Don’t laugh! Such factors don’t affect the size of your home but can raise or lower the cost per square foot.

The included materials and products used differ by each builder.

Your price includes granite countertops, but granite can range from $45 – $100 per square foot based on color and thickness.  Are the included hardwood floors ¾” or the cheaper 3/8” thickness?  Are they prefinished or finished in place?

Five inch wide flooring is considerably more expensive than the same brand in a 2 ¼” or 3” wide flooring.  Seeing on a builder’s specifications sheet that granite countertops and hardwood floors are included is insufficient for comparing different builder’s cost per square foot.  Quality name brand windows could easily add $10,000 or more compared to a quality lesser known brand of windows.  Even within name brands, product prices vary widely.  Quiet dishwashers – something you will truly appreciate – are more money than their entry level counterparts.

The type of home you build impacts cost.

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.

A 2,000 square foot two-story home with 1,000 square feet on the main floor and 1,000 square feet on the second floor will have a smaller, less expensive foundation and a smaller, less expensive roof.  The wider and deeper one-story home will often require a larger, more expensive building lot.  So, even though the finished square footage of the two homes is identical, two-story homes usually cost less per square foot.

The total size of the home.

Some costs are constant regardless of the size of the home.  Permits, environmental, neighborhood, government fees, inspections and utility hook-ups are unaffected by the home’s size.  A smaller home will still have a kitchen with all of the same appliances – just like a larger house.  Generally, smaller homes have a higher cost per square foot assuming finish levels are comparable.

Check out your builder

We hear horror stories of builders who will quote a price based purely on square feet and then pound the buyer with extras after the job is started.

Reputable builders will have a long list of references from happy homeowners.  Contact those references! Similarly, there is great value in a builder’s longevity.  You don’t last in homebuilding without treating your customers and your subcontractors right!

A cheaper cost per square foot will be long forgotten when issues within the home arise after you’ve moved in, your builder ignores your plea to fix your warranty items, or simply goes out of business and starts working under another name.  What’s the cost of the square foot of your new home warranty?

Do you REALLY want the cheapest?

Even if you can get fairly comparable cost per square foot information from multiple builders – meaning they’re all bidding using the same set of plans, specifications, home site cost factors, product amenities, finishes, etc. – are you going to automatically take the lowest price per square foot?

How do you suppose the builder with the lowest price per square foot was able to do it? Understand you want your builder to make a profit on building your home.  If he/she doesn’t, they won’t be in business to take care of the warranty issues with your home and you’ll be stuck regretting taking the deal that was “too good to pass up.”

When it comes to the cost per square foot for your new home, like with most of life’s major purchases, you get what you pay for.  Homebuilding is a craft and an honorable profession to which some exceptional people have devoted their lives.  But as with any profession, there are a few bad apples that tarnish the industry.

So, if you choose to, use preliminary cost per square foot numbers to help know if you’re in the ballpark budget wise.  Don’t assume they’ll be the basis of your purchase agreement.  Exercise great caution when using cost per square foot in comparing builders and their homes.  Even if you believe you’ve got an “apples to apples” comparison, the low cost per square foot builder might just be one of those bad apples.

Quality workmanship isn’t cheap

Different electricians, plumbers and heating contractor’s prices vary too.  Framer’s, drywaller’s, trim carpenter’s, flooring installer’s and painter’s work are all evident the day you move in.  Does their work reflect the pride you’ll have in your new home?  The value of a caring craftsmen shows up when you have annoying problems with your new home.  In order to get a lower cost, a builder can opt to hire the low-bid plumber or drywaller on your home.  Or, will you benefit from the builders that enjoy long-standing relationships with quality sub-contractors even though it may cost more?  Know also that labor rates vary significantly by regions.  Your brother may have gotten a new home built in Texas for $90 a square foot, but in the Northeast, it is going to cost more to build an identical home.

Every home builder can give you a detailed and accurate cost per square foot.

  • A “production” builder builds the same portfolio of plans over and over again, purchases large tracts of land and develops entire neighborhoods.  A production builder will control the amount of personalization (such as minimal, if any, plan change and limited finishes selections) and can most quickly quote a price per square foot. There are 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 over numerous homes built from a single home design.
  • Semi-custom builders offer a wider variety of home designs, building sites and finishes for your home.  Such builders will typically modify their home plans to suit your needs.  They may initially provide a wide price range, such as $100 to $200 per square foot depending on what you want, reflecting many of the variables addressed.  Such wide ranges are not very satisfying, but know as you make decisions, the ultimate price per square foot comes clearer into focus.
  • A custom home builder may never build the same home twice.  She doesn’t have historical data for that specific home to look back on as 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 firmed up can lead to disastrous results.

When a real estate agent lists a house for sale… when a mortgage loan officer submits a loan application for underwriting… when an appraiser values your home, they all report the home’s square footage and a price for the home.

The entire existing home market uses this square footage price as a barometer for establishing homes values and listing prices.  But be wary of real estate agents who seem to homogenize new and resale homes by merely comparing all listings by their cost per square foot.  They’re either being lazy or they don’t understand the differences.  Is a used Honda Accord worth as much as a brand new Accord?  Used homes don’t come with a full warranty and they are not built to today’s stringent construction, safety or energy codes.

It’s Easy – right?

Easy to calculate – 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’s straightforward to use as one way to compare homes.  And it’s easily accessible.  The internet – particularly major real estate websites – publish this information.  Looking at design, amenities and products shown in new homes through the lens of cost per square foot can help you get a feel for if what you want is within your budget.

Understanding why homes cost what they do is difficult.  There are so many variables!  Cost per square foot seems like a fair way to ensure you’re not getting ripped off, but can be a rip off tool in itself when used in a misleading way by an unscrupulous builder or un-informed real estate agent.

You’re a bargain shopper and are looking for the lowest cost per square foot.  This lowest price approach can make sense for standardized, mass produced products like big screen TVs or even a new convertible.  Still, you’re not buying that car on a basis of its “cost per pound” which is like purchasing a new home on a cost per square foot.