The Pitfalls of Cost Per Square Foot
It’s tempting for homebuyers in the planning stages to request a cost per square foot calculation from their homebuilder. While this may provide a straightforward figure on paper, it can be misleading and lead to costly mistakes. Despite its popularity, cost per square foot is an unreliable measure for accurately determining the costs associated with building a new home. Misunderstandings around its calculation can lead to expensive decision making.
Cost Per Square Foot: An Explanation
The ‘true cost per square foot‘ cannot be accurately determined until every expense associated with the build, such as building materials, labour cost, subcontractor bids, lot preparation, and interior finishes, has been identified by your builder. This typically only occurs once the official estimate has been drafted.
Calculating Cost Per Square Foot: An Example
Calculating the cost per square foot isn’t a simple task. At Georgian Bay Homes, for example, we calculate the square foot price by dividing the total cost of the home by the livable square feet of the home. Here, ‘livable square feet’ doesn’t include spaces like porches, garages, driveways, or unfinished areas, but the costs for these areas are included in the total cost.
Total Cost of the Home ➗ Livable Square Feet* of the Home
Misleading Aspects of Cost Per Square Foot
If you’re trying to compare estimates between builders using cost per square foot, it’s like comparing apples to oranges. You might think you’re getting a better deal when, in fact, you’re not. For instance, building a 2,000 square foot home with a 100 square foot porch and a standard garage will have a different square foot cost than a 2,000 square foot home with an 800 square foot porch and a three-car garage. The same goes for different finishes in homes of the same size.
When is Cost Per Square Foot Useful?
Truthfully, it’s almost never useful. While it’s understandable to lean on metrics like cost per square foot in the planning stages of building a home, it remains an unreliable measure due to lack of industry standards for what constitutes being part of a ‘square foot’ calculation. Instead, if you must use this metric, consider it as a rough estimate for your final cost.
If you choose to use cost per square foot to compare homebuilders, ensure you’re making a direct comparison. Clarify how your homebuilder calculates the cost per square foot and have an in-depth discussion about the construction cost. We always recommend customers sit down with their builders to discuss the costs associated with their project.
A recent Client Q&A About Cost Per Square Foot
What is the Industry Standard Method of Calculating The Price Per Square Foot?
The industry standard method for calculating the price per square foot is to divide the total cost of the home by the livable square feet within the home. It’s important to note that ‘livable square feet’ does not account for areas such as porches, garages, driveways, or unfinished spaces, like attics. However, the expenses associated with these areas are factored into the total cost. I’d like to emphasize this: without each essential piece of data, the value of cost per square foot significantly diminishes. This is particularly true given that different builders may interpret and calculate these costs in varied ways.
What factors contribute to the cost per square foot when building a house?
Square foot pricing is very subjective and much has to be taken into consideration. Factors include the location of the build (city, township, urban, rural), the type of build (custom, subdivision, design build, package build), the builder (custom, semi custom, townhomes), property conditions (wet, rocky, utilities, treed), the definition of square foot price (house, landscaping, living space), among others.
How does the role of the builder affect the cost of the build?
The kind of builder you choose can significantly affect the cost. Builders have different methods, some may be package builders (semi custom) and others might be full custom builders (design build). They can help shape your ideas and control the materials being used, and the actual build process. Some builders might offer packaged homes with minor changes, others may charge a premium for changes outside their usual scope.
What additional factors can influence the final square foot pricing?
The design and style of the home, the finish (brick, stone, vinyl, etc), and the definitions of square foot pricing each builder uses, can influence the final cost. For instance, some builders may not include property, septic, well, landscaping, etc into their pricing while others do. There’s also the question of what counts as living space – are decks included, is the unfinished basement part of it, and are dimensions taken from inside wall or exterior wall?
Can lot development costs in Georgian Bay be estimated around 15% to 25% or more of the building cost?
Yes, this is generally true. However, it’s important to be aware of what you’re buying when you purchase a lot. The pre-construction costs can be overlooked, and usually are, and these can sometimes be quite costly and unexpected. It’s advisable to have someone knowledgeable inspect the property and provide advice.
This is not to be confused with development fees, on new unserviced lots, charged by the township for such things as school taxes and utility costs which must be paid before you get your permit. Again often overlooked, and not included in budgets, when purchasing a vacant lot.
Would building a 1700 square foot bungalow cost over a million at $600 per square foot?
The calculation may be accurate, but it’s important to consider whether this cost includes excavation, grounds and utilities requirements. It’s also vital to consider if the property needs a septic, well, lot clearing, landscaping, driveway, or if it’s a wet property requiring a lot of fill and engineering. These factors may not be accounted for in urban subdivisions, but are very relevant in rural areas. The house may be $600 per sq. ft. and if unaccounted for the pre-construction cost can be another 15% to 25% of the building costs.
I want to avoid having a home that costs more than it’s worth on the market. Any advice?
Generally, building a custom home is not about making a quick profit. If profit is your goal, consider a quick build with minimal architectural design and contractor grade finish materials similar to a urban subdivision style. Otherwise, building a custom home is more about getting what you want now and planning for the future. It’s more of a long term investment.