Cost Per Square Foot Concepts

Cost per square foot concepts. On paper, they seem like a great idea. You get the peace of mind that your home will be built to your exact budget. On top of that, you know what to expect from your builder during the development process.

Unfortunately… that’s not how it works in the real world.

In the real world, cost per square foot concepts cause way more problems than benefits.

The Information Gap

The main problem with these concepts is they offer a perception of mutual understanding between the home buyer and the builder. You think that the builder knows exactly what you want built, and will follow the plan down to the last word. Unfortunately, the builder doesn’t share that mindset — they know that developing a custom house isn’t as simple as following a plan. Why? Because there are a variety of complications that are not covered by a cost per square foot concept.

For example:

  • How will you calculate the square footage? If your builder is being forthright, that generally means just the living area… not the area under the roof.
  • What else is included in the home? These concepts make a massive number of assumptions, to the point where the initial quote becomes irrelevant. What kind of roof will be used? What type of finishes? Is there even money allocated for a front door?
  • How much development will take place outside the home? For example, do you need to allocate money for a swimming pool? What about a multi-car garage? Well, those are going to massively skew your final cost.

These are just a few of the incredible assumptions (and problems) that are created by relying on a cost per square foot number. And they will occur every single time — regardless of the builder or the home buyer. This issue is inherent with custom home building because you are doing just that: making a home that is personalized to your exact desires. There are no “standard” options or choices, absolutely every element of the house is under your control.

If there are so many problems with quoting a projected cost per square foot… why is it used so frequently?

One of the main reasons is that people are lazy. Both realtors and home buyers are risk adverse; they want a rough estimate for the home so they can feel secure. On top of that, they want to know their budget is being respected and that the builder will not take advantage of their trust. Due to all of this, builders are forced into providing estimated cost per square foot quotes, whether or not they believe it to be a smart decision.

Not All Builders Are Created Equal

Watch out: Sometimes unethical builders will use this point of contention to draw in unsuspecting clients. These builders will quote a lower cost per square foot in the hopes that it will cause the client to work with them (rather than scare away potential clients by quoting a real number). The idea is that once a client has committed to the project, the builder will then “reveal” the hidden costs. In reality, these hidden costs existed all along… but you’re not able to back out of the arrangement at this point with a half-finished custom house.

Similarly, another common “bait and switch” technique used by builders is putting an astronomical amount of allowances into the quoted price. Since the client is unaware of how much money goes into these individual pieces, they end up massively underestimating the costs required to build their dream home.

For example, let’s say your builder asks what you want to use for cabinets. You make a decision, and the builder decides to put a $8,000 allowance into the plan for them. Well, when you are developing the home and head over to the cabinet store to make your purchase… it turns out that $8,000 allowance will barely cover two cabinet doors in your preferred style. I’m exaggerating of course, but you get the idea. So now you’re faced with a lose-lose situation: either accept a lower-quality home, or go into your wallet for even more money. 

As a home buyer, you should be aware of these unscrupulous tactics and choose to only work with real professionals. Every builder says they don’t do it, but the harsh reality is they all do… because clients force them to quote an estimated budget for a project that has unlimited possibilities.

The moral of the story: Go into the design process of your custom home with an open mind, and make sure you work with a builder that isn’t afraid to tell you the absolute truth.

The Right Way To Plan A House

We often deal with similar situations to those described above. Understandably, clients want a quote for the cost per square foot and often ask questions like: “Are you including building permits in the estimate?”

As you have just learned, there’s no right or wrong answer. The truth is that we don’t have a cost per square foot. We don’t have an estimated price. This is a truly custom home and the only person in charge of the price is you. We will work alongside you during the planning process to help advise your decisions, but, at the end of the day, you are the one in charge.

Why’s that? Because there are ways to design a home that is expensive and there are also inexpensive options. Everything you choose during the design process has a direct impact on your final cost. This includes everything from the type of roofing (shingle, tile, and metal roof costs vary dramatically) and the pitch of your roof (more steep, more expensive) to the finishes inside your home… and don’t forget the windows, doors, plumbing, and energy choices.

This is your custom house, so don’t waste the opportunity by trying to secure a specific cost per square foot. Work with us hand in hand to get the best of both worlds: a custom house designed to your exact specifications while staying within your budget. No assumptions and no misunderstandings.