Understanding Cost Per Square Foot

Published August 1, 2023

Building your dream home involves a mix of excitement, decisions, and of course many financial decisions. Amidst this whirlwind of choices, there’s a term that consistently takes center stage: ‘cost per square foot.’ This metric, widely used to estimate the financial scope of building projects, provides a glimpse into the financial landscape of your dream home. However, as with any simplified measure, there’s more to the story than meets the eye.

How is the Cost Per Square Calculated

In new home construction, the cost per square foot is typically calculated by dividing the total cost of construction by the total living or heated square footage of the house. However, it’s important to note that the specific calculation and factors considered can vary between builders.

Here is the foundational formula for calculating the cost per square foot in new home construction:

Cost per square foot = Total cost of construction / Total heated square footage of the home

The overall total cost of construction includes various other expenses such as materials, labor, permits, land acquisition, design fees, and other associated costs. The total heated square footage of the home refers to the combined floor area of the living spaces in the home. This would not calculate non-living areas such as porches, garages, and any other non-heated areas.

Cost per Square Foot: Customer Benefit vs. Builder’s Perspective

As mentioned, the cost per square foot is typically generated for the benefit of the customer, not the builder. It serves as a simplified way to give potential homeowners an idea of the price range for their desired home size. However, this number may not accurately reflect the actual cost incurred by the builder.

Different builders may calculate the cost per square foot in various ways, depending on their methods, materials, and scope of work. Factors such as customization, location, design complexity, and quality of finishes can significantly impact the cost. It is crucial to clarify with your homebuilder how they calculate the cost per square foot to gain a better understanding of what it entails.

Comparing Estimates: Apples to Oranges

Using cost per square foot as the sole criteria for comparing estimates between builders can be misleading. Construction costs can vary vastly, even with the same cost per square foot, due to differences in the quality of materials and finishes, as well as the level of customization included.

For example, Builder A may provide a lower cost per square foot but may be using lower-quality materials and finishes compared to Builder B, who has a higher cost per square foot. In this case, opting for the lower cost per square foot may result in lower overall quality and potentially higher maintenance costs in the long run.

Seek Clarity and Have In-Depth Conversations

To make informed decisions about homebuilding costs, it is essential to go beyond the cost per square foot and have detailed discussions with your chosen builder. Request a comprehensive breakdown of the estimated costs, including materials, labor, permits, and any additional expenses.

Understanding what is included in the cost estimate will help you assess the value and quality being provided by each builder. Ask questions, seek explanations, and ensure that you have a clear understanding of all aspects of the building cost before making any final decisions.

While the cost per square foot can serve as a starting point for discussions about homebuilding costs, it should not be the sole decision-making factor. Recognizing its limitations and having in-depth conversations with your builder are essential to gain a comprehensive understanding of the costs involved and the value you will be receiving. Clarity and transparency will ensure that you make well-informed decisions and achieve the desired outcome for your dream home.



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