Do you think custom homes cost more? Prepare to be surprised.
There are a lot of misconceptions about the cost of building a home. After reading this article, you might realize that building your dream home doesn’t have to be a budget-killer.
What You Need To Know
There are three different types of home builders. Prices, quality of work, and customizability vary widely between these three groups. Understand the differences in home builders and you’ll discover why custom homes don’t necessarily cost more.
1) National Production Builders
There are many different national production builders, one example is Centex. The main thing to remember about these type of builders: They are NOT in the home business, they are in the land business.
They just buy large quantities of land – inexpensively from farmers or other low-cost opportunities – and they develop the land themselves. They rely on economies of scale to massively lower the cost per lot. In simple terms, they follow a very similar blueprint for every home (in terms of materials and labor) so the entire operation can be done as efficiently and cheaply as possible. The homes are constructed in bulk, and they stick to residential areas that are attractive to home buyers.
For the most part, you get what you pay for when it comes to national production builders. They aren’t trying to make a large profit on the house itself, and instead focus on profiting from the land. Over the years, these builders have almost perfected this routine. In fact, the majority of homes that people initially live in are done by these builders.
National production builders are pros: They understand the marketplace very well, and know what they’re doing because they’ve been in business forever. The main con is that you aren’t getting a custom home. Consider this option if your main goal is to stay within a tight budget.
2) “Custom” Builders
These are people who call themselves custom… who are really semi-custom. They will purchase lots in a subdivision (this is essentially a large plot of land that has been divided into individual lots for home builders), and may or may not allow you to make changes.
Keep in mind: The changes you’re allowed to make probably don’t include moving around exterior walls. In the same way, you are probably unable to make any radical changes to the house. That’s why we call these builders semi-custom. They offer limited customization but don’t come with the same low-price that you’d see from a national production builder. From inexpensive homes all the way up into million dollar mansions, semi-custom builders can be found in almost any price range.
3) A Full-Blown Custom Builder
This is where you get into “real” custom home territory. For example, at Cornerstone we make no assumptions about what goes into the house. We start with a blank piece of paper and go through the design process from start to finish with you. This means the finishes, the design, and the price is based entirely on what goes into it. Want more expensive finishes? We can make that happen, and the price will change accordingly. The same goes for less expensive materials.
Here’s the big secret: It doesn’t cost anymore to do it THIS way (a fully custom home) versus the semi-custom way.
Because semi-custom builders do not have access to the same economies of scale that are bestowed upon national production builders. They have access to the exact same contractors and materials as fully-custom builders. With a semi-custom home, you end up paying significantly more than a production builder without gaining any meaningful customization. Remember, you are buying the semi-custom builder’s floor plan and design… so if you are after a truly custom experience, it probably won’t cut it.
The Economies Of Home Building
To understand how this works in the real world, let’s take a deeper look at economies of scale when it comes to home building. Production builders save big money by producing homes en masse. Think of them as an assembly line of production.
But, the minute you get away from that — and move onto a semi-custom builder — you have lost nearly 100% of those price drops. Semi-custom builders don’t have access to lower prices than fully-custom. For example, they pay the exact same price for labor and materials.
No supplier or subcontractor would ever offer cheaper pricing to a semi-custom guy, because they would lose all of their other business. On top of that, we hold our subcontractors to a certain level of workmanship and price them accordingly. (We can’t even hire the low-cost subcontractors that are used by production builders, because we need better workmanship.)
All of this is why it’s almost deceptive to say a custom home costs more.
In fact, sometimes fully-custom builders will offer more competitive pricing than semi-custom. At Cornerstone, we don’t have a fancy model center, or sales people, or pre-owned lots… so our overhead is significantly lower and this cost-reduction gets passed down to the clients.
The actual cost of construction for a custom home will be nearly the same as a semi-custom home, because they can’t take advantage of any economies of scale. Wouldn’t you prefer to have a fully-custom home without a price increase?
A Fully-Custom Home Without The Price Increase?
Remember: There are no secrets in this business. None of our competitors know anything that we don’t know… and vice versa. They might have a different process than we do and they might use different materials in the house… but the bottom line is that it’s not a secret and it typically won’t give you a cost advantage.
So if someone tells you they are going to build you a better house for cheaper… it better be a national production group (because otherwise they are deceiving you). If there was a better or more inexpensive way to build homes, we would do it. It would be in our best interest to make more profit and be able to cut costs even further.
There is one drawback: Custom homes may take longer during the design period to come up with the entire layout of the house.
This is because a semi-custom builder will just make assumptions. We don’t do that.
For our custom homes, the client is intimately involved in the design process, and we’re looking at you to make all of the final decisions. You get to drive the design process — and for that reason it may take longer to complete — but in the end, it won’t cost any more than a semi-custom. Think about it this way: Where the wall is in the house isn’t a function of cost. From a pure design perspective, how everything is laid out is NOT A function of cost.
The bottom line: If you want a custom home that really meets your needs, put in some extra effort during the design phase. That way you’ll end up with a home that exceeds your expectations without the price increase.
Interested? Contact us through our website or give us a call today to set up an appointment.