Almost two years ago, I wrote a blog post about the cost of building a home (here) but a year is a long time in building so I wanted to give an update for those of you who are dreaming of building your dream home? With building costs increasing 30 per cent over the past two years, taking on a project of this scale is not for the feinthearted but is it a far fetched fantasy for most people? Or with the cost of homes at an all time high, and as we move into a softer market with building costs almost certainly set to ease off, is it the smart thing to do? With the rising popularity of pre-fab homes and the perception of the lower building costs, is building your own dream home more attainable than ever?
The first thing to think about if you are going to be looking to build a home is whereabouts? As with buying a home, the location is probably the biggest single decision you will make. Not just the geographic location but the type of lot. If you look at the price of lots, you will see lots for sale that range from $100,000 to $3m. I get a lot of people calling me up and saying "I saw a lot for $200,000, it looks like a great deal." As with most things that appear to be a bargain, there is always a catch. It you see a lot at this price point, there will be a reason for it. As with anything you get what you pay for.
So what are the things you should think about as part of choosing and buying a lot to build your home?
As well as the geographic area and whether it is a rural or urban setting, there are other important considerations that will impact the economic viability of building a home. One easy way to think about it, is that the cost of a lot should not be more than 25% of the value of the finished home. For example if you spend $1m on a lot, you need the finished home to be worth $4m or more. One of the challenges as build costs have increased is making sure the cost of the build plus the cost of the lot do not end up being more than than the value of the finished home. This is not only economic madness but it also makes it impossible to get financing.
This is fairly obvious but worth mentioning. If you purchase a lot that is on a steep slope it will be a lot more expensive to build on compared to a flat lot. Similarly, if the lot you purchase requires extensive grading, or tree removal, these costs can all start to add up.
While a lot of people might be put off buying a burn lot on which to build because a home has already burnt down, there are significant advantages. The good news in Sonoma County is the county will waive the impact fees unless there is an increase in square footage compared to the house that burnt down. There are numerous benefits: There are more relaxed code requirements as well as no requirement to install solar for any re-build. The other benefit is that there will almost certainly be significant infrastructure in place already. For example, there will be a driveway and all the utilities already in place. I will talk more about these but even something like a driveway can get very expensive at an average build cost of $25 per foot.
Another consideration is whether the lot is on city sewer or will require a septic system. As long as the city sewer is right at the edge of the lot it will be pretty straightforward to hook it up and will likely cost less than $10,000. If however you need to put a septic system in then there are a lot of factors to take into account, not least the incremental cost and time that this will incur in the build schedule. When you take into account all of the soft costs, putting a septic system in can cost $80-100,000 and can take a year if it goes well and even two years if it is more complicated. The ideal scenario is to purchase a lot that has already had what is called a perc test and ideally a septic design for a system that will support the number of bedrooms in your idea home design.
Again, choosing a lot that is on city water is the easiest route to go. If there are water hookups at the edge of the lot you can expect to pay no more than $8000 to get connected. However, if you are looking at a more rural lot, then you will need a well. The majority of properties, even if they are not a burn lot, will be sold with an existing well. This is particularly important right now as there is a moratorium on drilling new wells into next year which will slow things down.
If you do need to drill a well, the cost is dependent on how many times you need to drill before you find water and how deep the well is. There are of course no guarantees although any decent well company will be able to tell you what your chances are in any given area or piece of land. The minimum water requirement for building a residence in Sonoma county is just over 1 gpm. Any additional living structure will require an additional 1 gpm. So What is the cost of installing a well? The cost to drill a well and then put in the necessary well equipment will likely cost you $50-$60k.
Most sites will have power at the edge of the lot. As long as you aren’t having to run power hundreds of yards, the cost is fairly manageable. For example, a client of mine has a lot which is about a quarter of an acre with power at the road. He got a quote of $9800 to have the power connected as well as have a temporary power pole during construction. With advances in Solar power and also in battery storage, it is now a lot more cost effective to be entirely off the grid if you are looking to build in a more remote location.
So having found the lot where you plan to build, we now need to start to look at build costs. For the purpose of this video I am using an example of home that is currently being built in Santa Rosa. The home is a 4 bed, 4.5 bath home totaling just over 4000 sq ft with a 3 car garage on a 1 acre lot with a pool. The lot was purchased for just over $300,000 and because it was a burn lot it already has all the infrastructure in place and the cost savings in the build and fees that I explained earlier. I have broken down the costs into 13 different categories to give you an idea of what you might expect to spend on building a home like this today.
Unfortunately the first thing you will start spending money on is fees. Fees for architects, fees for draftsman, surveyors, engineers and of course the county or the city. You will soon learn that Sonoma County or the city where you are building have no end of ways to charge you additional fees. I should say from personal experience is that one area fees can run away is the cost of the architect. I think a good architect is worth their weight in gold but I would strongly advise against agreeing to work with an architect who charges a per cent of the build fee. There are lots of ways to limit the architects fees which I don’t have time to cover here but you should expect to pay a minimum of $30k on architectural fees alone.
If we summarize the soft costs we can expect to pay around $95,000.
If the lot is in a city with access to city services the costs to hook up water, electric, sewer and gas you should budget $28k for the various connections. However, if you are planning to build in a more rural location where you need to install a septic system and put in well infrastructure the costs can quickly escalate in excess of $180,000. The key here is being certain that you can find water and are able to put in septic system that will support the house.
For this home because it was a burn lot with the infrastructure in place the costs are minimal. If we look at the costs for a city lot they can be summarized as follows:
If you are on a clear, flat lot with no need for expansive grading and excavation and no requirement to build expensive retaining walls, you will be able to keep these costs in check. On a relatively simple site you can still end up spending nearly $80k by the time you have spent $50k on grading and excavation and $25k on site clearing and lot development. If you buy a property with a tear down on it then demolishing the old structure could cost $50k in its own right. The being said, it is always worth approaching your local fire department because I know in some areas the fire service will burn the structure down for free as part of training fire fighters. They will even do the clean up afterwards in many cases! What’s more it would be fun to see your tear down going up in smoke.
As with many of these categories, it is easy to forget just how expensive these costs can be if you go crazy with your plans. When contractors quote a build cost of $500 per sq ft they will often not include driveways and hardscaping which can make a huge different to the overall cost.
For an average amount of concrete work you should budget for $50k of concrete.
For landscaping, the big ticket item is always the amount of formal planting and of course whether or not you want a pool. If you are building a pool on anything except a flat lot you can expect to spend close to $250,000 by the time you have put in all the pool equipment, done hardscaping all around the pool and added the outdoor kitchen. The other item that people often forget about is just how expensive decking is regardless of whether you use a high end material like Redwood or even bamboo. You will need to allow $20k even for a simple deck.
This is where the costs really start adding up. The cost of pouring the foundation will vary based on the type of soil and the terrain because that will dictate the type of foundation required. For the 4000 sq ft house in this example the cost of foundation is $150,000 and then the cost of framing the house is a further $320,000. By the time you add in the Trusses, a regular shingle roof, the gutters, the siding and the external trim you have added another $136,000. Once you have the external structure up you still need to pay for Drywall which will cost $60k and insulation to meet all of the Title 24 environmental standards will cost another $24k. This takes the total build cost to $686,000 to get the structure up and weather proofed.
Another big ticket item are all the windows and doors. This is an area where there is a large variance between the low end and high end. I am sure you have been to a house where you open the Fleetwood sliders and they just feel expensive. I personally feel like it is an area worth spending on because you will notice it. The other expensive door systems are the bi-fold doors or the door sliding systems that disappear into the wall. Architects love these for the indoor/outdoor living aesthetic but in my experience people who have them don’t tend to use them because they are either a hassle to use or once open, there is no way to keep the bugs out! For a 4000 sq ft home you could expect to spend $75,000 on the window / door package and an additional $16,000 on the garage door. In addition you will need to budget another $35,000 on all the internal and external doors. As with many of these items the costs start adding up. Just the window and door package comes out at $126k for this home.
This isn’t the sexy bit but the rough plumbing will cost $50k, the HVAC will cost $35k and the sprinkler system which is mandatory in all new builds, as well as remodels where a significant % of the house is being remodeled, will cost $18,000. By the time you add in a few smaller items you get to a cost of $110,000 on the plumbing, excluding all the faucets which I included in the Finishes budget.
The rough electrical will cost approximately $45,000 for a house of this size. It is worth noting that if ever you undertake a large remodel on an older home, an electrician will often opt to rewire the entire house, leaving the old wiring in there as opposed to patching new wiring into the old wiring.
For the purposes of presenting the costs of building this home I have put all the lighting fixture costs into the finishes budget so the electrical budget is $45,000.
I know when I got the plans for my house and then saw the contractor bid which broke down the plan item by item, the most depressing part of it was looking at the foundation costs or the site work costs coming in at over $250,000 which I would never see. At least once we get on to the budget for finishes they are things that we will see and touch every day. These are also costs when you need to have some very strict allowances or else you will blow your budget away. If you really want to import that marble from Italy then great but don’t expect your finishes costs to come in at anything like budget!
It is easy to spend $10,000 on a nice fireplace or $10,000 on all the plumbing fixtures or $3000 on door hardware. If you have four bathrooms then you will need four lots of shower enclosures and glass which will cost $30,000. This particular project allocated $3000 for bath tubs but we all know it easy to spend a lot more than that on a single tub. Even the tiling and the counter tops for the kitchen and bathrooms will likely cost $25,000. Another large ticket item in the finishes budget are the appliances. Like windows and doors this is an area where it is worth investing money, if nothing else for re-sale value. I love to cook so it is important to me to have the big range but buyers also love their high end appliances such as the Wolff ranges with the red controls! You should allocate $50,000 for the appliances package and $20k for that impressive entry gate. This gives a grand total of $170k on finishes.
In any house of this size there are lot of cabinets in kitchens, bathrooms and closets in bedrooms. Kitchen cabinetry is another one of those areas where you can spend money very quickly. However you can get middle of the range kitchen cabinetry for $60,000 and then expect to pay another $10,000 each for closet and bathroom cabinetry. The cost of flooring a 4000 sq ft home will cost $60,000 for an engineered wood floor. In total, by the time you add in all the trim around the doors and baseboards you can expect the carpentry budget to be $160,000.
It’s easy to forget about painting but even the indoor and exterior painting will cost $40,000. Typically a house of this size will cost a similar amount to paint internally as externally so allowing $20,000 for the interior and exterior will be sufficient.
Throughout a build project there will always be miscellaneous expenditure items. For example, any site will need to be secured with fencing and cameras given the cost of materials involved. There will be trash fees that can quickly get to a cost of $5000.
Even with realistic estimates, It is worth setting aside $100,000 for miscellaneous items that will come up. I know it sounds strange to consider that amount of money for small items but trust me, you will be glad you put it to one side.
Maybe its fitting that the 13th item on the list is the General Contractor costs. Lucky for some! Any contractor will expect to be paid a 10% mark up on all the sub contractor cost as their 105 overhead cost and then will expect an additional 10% as their profit on the job. For a build of this size this adds an additional $380,000 onto the cost of the build. For people who have never worked with a contractor on a big project of this nature, the size of this cost is often a surprise but a contractor needs to make their money.
So what does all this come to when we add it up. A grand total of $2.223m for a 4023 sq ft home with a pool, 3 car garage, 4 bedrooms, 4.5 bathrooms and an office. This equates to $552 per sq ft ALL IN. This includes everything including the soft costs, the pool, the landscaping the infrastructure. Throughout this worked example I have given actual costs to give you an idea of realistic pricing. However, it is important to recognize, you could go into a kitchen shop and spend $200k on cabinetry and countertops and this would immediately double our kitchen budget so to get to this number you do need to be careful on every item.
In this example, the lot was purchased for a VERY good price at $303k and with the build costs of $2.2m the total all in cost is $2.5m. Once this house is finished it will be worth minimum of $2.5m.
As you can see from the economics, building your own home isn’t a sure fire way to value creation but the good news is that you get your DREAM home which is perfect in every way, for the same price you would pay for a home that someone else designed and built.
In my mind if you can build your dream home with the level of finish you want in a location that you LOVE and it is worth what you paid to build it, that is a win. Where it often goes wrong is people either decide the location is not where they want to build their dream home or through the process of designing the home and choosing finishes the budget runs away from them.
This is the mistake I made. I chose a location that I could no longer see myself living in for a significant period of time and the design process meant we designed something that was over built for the area so it didn’t make economic sense to build it and then sell it. However, a few years on, knowing what I know now, I am looking to find a lot in downtown so I can finally build the home of my dreams.
When choosing a lot, consider its location, whether it's flat or sloping, whether it's a burn lot, whether it's on city sewer or septic, and whether it's on public water or requires a well.
The cost of the lot should not be more than 25% of the value of the finished home. For example, if you spend $1 million on a lot, the finished home should be worth $4 million or more.
Soft costs when building a home can include fees for architects, draftsman, surveyors, engineers, and various city or county fees. These costs can sum up to around $95,000.
Building a pool and landscaping for a new home can cost close to $250,000, depending on the lot's terrain and your specific plans. A simple deck can cost an additional $20,000.
The total cost to build such a home, including all expenses like soft costs, pool, and landscaping, is approximately $2.223 million, equating to $552 per sq ft.
Sign in with your email address
Enter your email address
