Probably the most frequently asked question in the home building industry, by potential purchasers of new homes. How much will my home cost?
Unfortunately the most asked question is responded to, by the most allusive of answers, due to many factors that will influence the cost of your home.
First I will identify several factors that will influence the cost of your home.
- Economic status of your location the cost of constructing a home in lower Fairfield County, in Connecticut, is extremely different than constructing the same size and type home in the Northwest Corner of Connecticut. Fairfield County is one of the most affluent areas of the country and the Northwest Corner of Connecticut does not support any of this wealth. Therefore the simple location of the home, in the same State, makes a tremendous difference in the cost to construct.
- Location, Location, Location the realtor’s slogan, that has been constant for many years, is that location, within the region that the home is built, means everything to the resale value of the home. If the resale value is high, the cost of building will be elevated in comparison to a less convenient and prestigious location. Streets with heavy traffic will be less costly than cul-de-sacs which have been established principally for residential development. Waterfront is always the choice location and will always demand a higher cost.
- Schools and facilities what schools are within the jurisdiction of your proposed construction site, which high schools, grammar schools, pre-schools, etc. are within the school jurisdiction? Schooling for families is one of the principal qualifications for higher cost locations. Where is the grocery store, the hair dresser, etc. The closer to an established shopping district is in many cases influences the cost of your new home.
- Size normally, the larger the home the more costly. This principal is discussed in several other discussions within this website, however it is simply common sense, the bigger the home, the higher the cost. A separate discussion is presented within this website that will explain the principles of square foot pricing on the cost your new home.
- Style the style selected will influence the cost of the home. If the style is Colonial, and has been constructed numerous times by the builder, the costs will tend to be more economical. If the style is heavily influenced by a European design, heavy, with stone and detailing, the costs will increase. If the home is designed as a totally custom home, and has no match with similar homes constructed within the area, and by the builder, then once again the cost will increase.
- Amenities the selection of individual amenities within the home influence the final value. The type of kitchen, cabinets, countertops, the number of bathrooms, the laundry facilities, specialty rooms, specialty storage areas, large open interiors, all factor into the final cost of the home.
- Finishes the selection of hardwood siding in lieu of vinyl siding, the use of custom mahogany windows as opposed to standard windows, the use of high end interior stone, marble , travertine for interior finishes , the use of specialized door and window hardware, the type of kitchen appliances, the type of flooring, etc. all influence the final cost.
- Resale Value the projected resale value of your home will influence the ability of the contractor to charge an additional premium to the home. If the contractor understands that the home being constructed will offer a high resale value, this is a positive situation for the purchaser and will cause the builder to escalate the costs, knowing the home will either increase in value, or remain consistently one of the more desirable homes in the neighborhood.
- Neighborhood comparison never own the most valuable home in the neighborhood. Home values are based upon a comparison of the neighborhood and the individual homes, number of bedrooms, baths, square footage. Builders understand this, and the more moderate home within the marketplace, will encourage the builder to increase the price due to the homes popularity.
- Land Cost the cost of the land must be added to the cost of the structure. So many contractors, realtors and even purchasers have a tendency to forget the cost of the land. This may seem impossible, however I have experienced a home builder submit a price for the project, assuming that the purchaser understands that the land is or is not included. Make sure all discussions include the land.
- Utilties what type of utilities are either available or must be constructed within the site itself. Is there a street sewer system that the home will be tied into, is there street municipal water that can be utilized, is there gas in the street, what is the availability of communication systems to the property? If no utilities are available, then a septic system for waste will need to be constructed and an artesian well drilled for fresh water. All of these systems will cost money.
- Site characteristics How far from the road is the building lot located, is there an easement for a driveway or utilities required, what is the condition of the site, is it rock and needs to be blasted, is it wet and systems constructed to manage the water, is the site fully wooded requiring extensive site clearing? Site characteristics will influence the cost of the project.
- Contractor competition what are the conditions influencing contractor competiveness. Is the marketplace saturated with builders or with purchasers? What is the current economic status of the home building industry in the area of the project? Competition equals more economical pricing; a housing glut causes contractors to reduce pricing, demand without inventory increases prices.
- Specialty construction is the project going to utilize specialty construction such as the modular concept, panelization, pre-cast foundations, pool construction, tennis courts, etc.? Each specialty will influence the final cost of the project.
Once the preceeding ( 14 ) factors are considered by the contractor, the price of the home will be generated. I stress that these 14 factors are a brief and not all inclusive summary of factors that will influence the cost of the project. Each project will have separate custom considerations that will influence the final cost of the home, and each project must be considered individually.
Now that we have circumvented any specific answer to the initial question, How much will my home cost? Let me provide some common values to determine the range of costs for the average home buyer. Again, this is approximate, however it is a means to an end, and will at least provide a starting point for pricing the home.
Method of determining the ball park guess at the value of your new home, prior to the input from the builder.
- Determine the cost of the land. This value should be readily available from the realtor. For example let’s assume the cost of the land is $125,000.00. If the home that is being considered is a 3000 square foot home, then the square foot value to be used would be $125,000 divided by the 3000 square foot home = $41.66 SF. Do not fall into the common mistake of basing the cost and value of the land on the size of the piece. It is difficult to understand, but the actual size of the piece of land is minimally important to the value of the land. As long as the land is large enough (within building department and zoning codes) to support the home, the size of the property makes very little difference on the value.
- Look at the local real estate books, found at all convenience stores within the area that you are considering constructing your new home. Each home, within this real estate book, will have a square foot associated with the home, as well as a selling price. For example, using the homes included in the book which are relatively similar to your anticipated home, simply divide the selling value of the home by the square footage of the home. If the home is selling at $550,000.00 and has a size of 2800 square feet, then the cost per square foot is $550,000.00 divided by the 2800 square foot home = $196.43 SF. This same procedure should be done for 3 or more of the typical homes in the real estate magazine, and an average of the costs computed. Obviously the more homes that are included within the average, the more accurate will be the final value.
- Realizing that this value of $196.43 ( using the singular computation noted in # 2 above ) includes the land cost , it is the total value you will have to pay for the property as advertised, the actual cost of the structure is $196.43 minus the land cost of $41.66 = $154.77 SF for the actual structure.
Once these calculations are performed and an average value for the homes is obtained, there are several factors that will influence the final value of constructing your new home.
- Monetary what additional monetary value would you pay, to have a builder construct your own home? This home will have all the specifics that you as the purchaser will desire. The home already on the market will not. This home will be constructed with all the modern efficient techniques currently available, the home on the market was built with techniques available at the time of construction.
- Schedule requirements What scheduling requirements will be required if you decide to construct your new home or have it built. Is there a school year issue, a job issue, schedule for vacating your present living space, etc.? The purchase of an existing home will in most cases ensure a move in schedule. The construction of a new home is based upon the unknown, no matter what the builder may indicate.
- Personal Preference Have you always dreamed of a new home? Has the thought of constructing your own home or having a builder construct the home always been a dream? How important is it, that you build your home ?
- Could this become commonplace or fulfillment of a hobby I know a couple in the Florida Keys that have constructed 10 homes around the country and have made money on all of them in resale. Their hobby is the construction of their home and once complete, they look to flip the home and start again. Is this you?
It is important that all considerations are discussed and evaluated prior to the actual decision to construct your home.
Now the final determination of what the new home will be valued at.
Considering all the preceding discussions, and rationale, various additive factors must be incorporated into the final value.
- The actual market value as determined by this discussion is = $154.77 SF ( home only )
- This value includes all the site amenities such as driveway, landscaping, etc. Typically the builder will conveniently leave all of this out of the actual quotation for the home. Based upon this scenario there should be another 15% added to this cost to include all the miscellaneous site details that will need to be incorporated. Therefore we are at 1.15 times $154.77 = $177.98SF.
- Your interpretation of the value of existing homes, dependent upon the ones you actually picked, were homes that were probably 5 to 10 years old. If this is the fact, and it probably is, another factor of 10% should be added for a brand new home. Now we are at 1.10 times $177.98 SF = $195.78.
- The builder will attempt to add another 15% to the bottom line for supervision, overhead, etc. etc. This would be a calculation of 1.15 times $195.78 = $225.17
If you are considering, in this example that you will construct a 3000 SF home, you should anticipate, based upon this process, using the averaging of existing homes in the area, that your new home will cost approximately 3000 SF time $225.17 = $675,510.00. This will be the initial builders cost, without the land. Don’t forget, it is very important to stay focused on the total scope of the project to eliminate being surprised when the land, the utilities, etc. must be added later on. Understand what you are pricing.
It is so important to understand, that the builder will attempt to make as much money as the market will support. You as the educated buyer will need to either educate yourself sufficiently to properly negotiate the deal, or hire a professional housing consultant to perform this task. I will discuss the hiring of an independent consultant within another discussion topic. However, this is the best means of trying to anticipate what your home will cost you, if you hire a professional builder to complete the work.
If however, you are adventurous and adequately aggressive to attempt this on your own, there is an entire discussion topic within this website to address that adventure.
Good luck!! And remember, economic conditions, location, competitive marketplace, and existing home prices will throttle the final values, however, this is not an exact science and all attempts to anticipate the final values of your new home are approximate.