Why cost per square foot is the wrong question to ask

Everyone asks the same question... "What is the cost per square foot to build?" Cost per square foot … as a homebuyer in the planning stages, is a tempting calculation to ask your homebuilder for. Yes, on paper, you get a nice, tidy wrap-up of your future home’s itemized-costs in a single, digestible figure. Too bad it’s not that simple. (It never is.)  Let’s be clear: cost per square foot is a terrible means of accurately measuring the costs associated with building a new home. And any misunderstanding you might have about how it’s calculated and used can lead to some expensive decision making.  Of course, cost per square foot has its place, but we need to have an honest discussion about its shortcomings as a predictor of cost. 

The question is always well-intentioned, but nevertheless, it is a frustrating question to try to answer, probably because there isn’t a straightforward answer and it’s wildly subjective.  If you were shopping for a car, would you ask a dealer, What is the cost per pound for this car? Probably not, right? We all know that the brand, model, and features of any given vehicle will dramatically affect the cost of a car—while how much the car weighs has very little to do with the overall price. Yet the most common question we get pertains to the cost per square foot, so we will attempt to answer it as best we can!  Any home builder should be able to go through their past projects, determine the final cost of every home, and then average out what the eventual price per square foot came to. But you would be making a mistake if you used that average number to make assumptions about how much it might cost to build the home you want to build. Why? Because every property is different, every home build is different, and every homeowner is different. You might like a Craftsman style of house with lots of wood and loads of natural stone accents throughout. Or perhaps you’d like to go with a contemporary modern look, where everything is very minimal and build materials are hidden away in exchange for more open lighting and larger windows. These are very different kinds of builds, which will have very different final costs. The cost per square foot to build one house won’t be even close to the other. On top of this, the land itself will require different permits, grading, utility installation, etc. On top of that, material and labor costs are constantly changing, so using pricing from a month or even a week ago may be out of date.

COST PER SQUARE FOOT EXPLAINED 

"True cost per square foot" cannot be properly calculated until your builder has identified absolutely every cost associated with your build, including plans, building materials, labor cost, bids from subcontractors, lot prep, interior finishes, etc.  For this reason, "true cost per square foot" usually won’t be available until after the official cost breakdown is drafted. So, once your cost breakdown is complete, what goes into calculating your final cost per square foot?  

CALCULATING COST PER SQUARE FOOT

It’d be hard (and probably more confusing) to cover all the ways builders figure cost per square foot.  At Accent Homes, we follow the industry standard for calculating square foot price: 

Total Cost of the Home ➗ Livable Square Feet* of the Home 

 *Livable square feet does not include porches, garages, driveways, or unfinished space (like attics) in the home, but the cost of these items IS included in total cost. 

Just to reiterate: without every critical piece of information, cost per square foot stops being useful altogether; especially when you consider builders can have different ways of looking at these costs.  

HOW CAN COST PER SQUARE FOOT BE MISLEADING? If you’re trying to use cost per square foot as a means of comparing estimates between builders, you might be comparing apples to oranges. You might think you’re getting a better deal, but you’re actually not. Clarity is crucial when deciphering cost per square foot. 

For example:  We can build a 2,000 square foot home with a 100 square foot porch and a standard garage. Or, we can build a 2,000 square foot home with 800 square foot of porch and a THREE car garage. And even though they’re both 2,000 square footage homes, the second one’s cost will be much higher on a square foot basis. 

This also applies to finishes:  We can build a 2,000 square foot home with standard finishes and another 2,000 square foot home with dream home finishes and there may be a $90 per square foot difference between the two. 

Ask your builder how they calculate the cost per square foot before using that information to make any decisions. Remember, cost per square foot is only useful when you know everything included in the builder’s cost. Be sure to consider all the costs associated with how you want your house finished, not just built. Also consider whether the builder puts in "allowances" for lots of line items as these are areas where actual costs may be far greater than allotted. Consider also if the builder is offering "cost+plus" builds. They may be able to ballpark an estimate for you in a short amount of time. The downfall is that your build begins and then 6-8 months later when the actual costs have ballooned beyond expectations and you're caught between a rock and hard place. This is the reason we prefer the cost-breakdown process. Sure it takes longer, but you know all the costs up front and can value engineer with your builder before you ever break ground. We consider this a team effort between you and I and we will help you navigate decisions so that your dollars are spent in wise areas.  

WHEN IS COST PER SQUARE FOOT ACTUALLY USEFUL? 

When is it useful? Almost never. Granted, we understand predicting cost is important to anyone in the planning stages of building a new home, so metrics like cost per square foot are tempting to lean on. But it’s an unreliable crutch. Namely because, in the home-building industry, there is no official standard for what constitutes a "square foot." Instead, we suggest that if you absolutely must use cost per square foot in your decision-making process, then use it as a loose gauge for ballparking final cost. And if you’d like to use cost per square foot estimates to compare homebuilders, you need to be absolutely certain you have an exact apples-to-apples comparison between the two builders. You don’t want to make big financial decisions by comparing "apples-to-oranges" or using inconsistent information.  The fact is, not all homebuilders use Cost Per Square foot internally. It’s a number generated for your benefit, not ours. You do need to clarify how your homebuilder calculates the cost per square foot. Once you have that, you’ll still want to have an in-depth conversation about the construction cost.  Every homebuilder is a little different, but we always sit down with our customers and detail the costs associated with their project or build – upfront. We give a firm price that won’t change unless they want it to.

WHAT QUESTION SHOULD YOU ASK INSTEAD?

The question you should be asking is what is it going to cost to build the home I want? This is where the collaboration process begins as you identify the style, size, and finish level that you envision, on the specific lot that you intend to build on.  The cost of homes built last year or even a few months ago should have no bearing on what it will cost to build your home, especially if you are designing a completely custom plan. Instead, during the consultation, you should go over your specific needs and wants, as well as the specific design criteria, restrictions, and requirements of your particular lot.  This includes the number of bedrooms, bathrooms, garage size, etc., and also your expectation in terms of the level of finishes and kinds of materials you desire (exterior materials, outdoor living, HVAC system, trim, doors, windows, flooring, lighting, etc).  A builder won’t be able to give you an on-the-nose price at this stage of the process, but with these insights you provide, they should be able to offer you a good faith estimate of what your budget expectations should be. Now you can see why using cost per square foot can be a misleading metric when considering building a custom home. Asking for a builder’s cost per square foot is the wrong question. 

A better question is, "What is an appropriate budget for the kind of home I want, and what are the expected finishes and inclusions in that budget?"  You wouldn’t buy a car based on its price per pound, and you shouldn’t select a custom home builder based on price per square foot.  

It’s Not All About Price

It is important for you to hire a builder who will steward your money and provide maximum value when building a custom home. However, your decision should not be based on price. It’s about trust, communication, quality, the process, the team, and ensuring that there is compatibility in terms of design style, vision, and ability to execute the vision. If you are considering building a custom home, we’d like to meet with you and hear about your needs. We’d also like to tell you about our process and see if we might be the right home builder for your project. To learn more and to discover if building a custom home with Accent Homes is the right fit for you, give us a call. We look forward to learning about your needs and wants and starting the cost-breakdown process with you!