May 9, 2013

How Much Does it Cost to Build a House?

A few years ago a friend of my dad had a house built for about $150,000.  He originally got a pretty wide variation in estimates and if I recall right other builders quoted him $200,000 or more.  Say you were to buy a piece of land like he did and hire someone to build a house for you -  How much would it cost?    Of course the quality of materials and the design of the house will impact the costs a lot.  

The price of home building is going to be so variable that its

not possible to set an accurate amount that would be useful across all situations.   There are too many factors that would impact the cost significantly.   Size of the house, local labor costs, local home building market, local laws, quality of materials chosen, etc.   All of these variables will impact the costs substantially. 

The National Association of Home Builders (NAHB) cited average costs for 2011.   They say the average construction costs for new homes in 2011 were $184,125 for a 2311 sq ft house.   That gives us a general rough average figure.  The numbers will vary a lot depending on where you live and the nature of the house. 

So how can you find out the cost of building a house in your area?  Again, there are too many variables to get a solid number but you could use some basic estimating tools to find a broad range of costs.   Below are 3 tools you can use to estimate home building costs.   You can then use those 3 tools to give you an estimate of the range of prices for your area.

Method #1 has a calculator that you can use to estimate home construction costs.   They will let you pick a lot of detail about the size of the house, the design, the features the quality of construction and then specify the metro area that the house is in.  Then they give all the final results of the cost broken down including the materials, labor, and contractor markup.   I first chose the middle level quality of '3' and their figures for a typical 2300 house in my area came out to $391,000 which is very high.   New construction 2400 sq ft houses in our area are selling for closer to $300,000 already built.   I ran it again and chose quality level of '5' and it came out with a more realistic figure of $217,000 which is closer to reality.

Method #2
Buildingjournal has a simple calculator that estimates costs.   They only ask metro area, exterior finish, number of stores, basement, construction grade and the sq ft size.   They say a 2300 sq ft house in my area costs about $187,000.

Method #3
One way to figure out the cost of new construction in your area is to look at what new houses sell for.   You'll then have to deduct the cost of land.   That may be a little harder to figure but you can usually find vacant lots for sale in your city and figure out the land values from that.   So for example if a new 2400 sq ft house is selling for $300,000 in my area and a similar size vacant lot here sells for $50,000 then I could estimate the local construction cost to be closer to $250,000.   Of course thats not really exact either.   A builder may have a higher profit margin or they could even be taking a loss.  

Estimating a range of costs
Given the 3 estimating methods above I get figures of $217,000, $187,000 and $250,000.    Thats just about $217,000+/- 15%.   I could also say the range is $81-$109 / sq ft.   I expect this is in the right 'ball park' for the local home building costs.

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  1. I have never done it personally, but I would expect that it costs a lot more for an individual to have a house built than it costs a "new home builder" (which we'll abbreviate NHB). For one thing, a new construction project probably involves multiple homes, leading to economies of scale in multiple aspects. For another thing, I would bet that a contractor would want more profit from an individual, since they would be dealing with someone who is not used to the process of building a house, and who is far more likely to change their mind about things (which is to be expected; there's nothing wrong with the general contractor expecting to get paid more for more work.) Furthermore, it seems to me that the individual would have to pay an extra layer of profit; the "contractor profit" for a NHB would be the difference between the costs and the sale price (and they might even have a real estate broker on staff and keep that part of the profit as well).

  2. SteveD,

    Good points. I'd agree with you that individual house would be less efficient and have a higher marginal % profit cost for the builder.

    On the other hand the sale price of a new house is generally driven by the market so the profit margin for a new development may be based more on what the market will pay. So it could vary more wildly and not be closely based on a % of costs.

  3. My general rule for construction is to do a conservative estimate then double it. After it's been doubled, be prepared for it to double again if things go poorly. But there are some nice prefabs these days that would be appealing in the right circumstances. Check out for some pictures.

  4. I would personally do an estimate and add 50%, you never know what problems you will run up against.There are ways to cut costs though.Making sure you get a reputable building company will minimise your costs and risk factor too.


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