Price per square foot is a way to calculate the total cost to build a new home, or the current market value of a home.
Realtors and home builders use this calculation in different ways.
For home builders, they are often approached by couples wanting to build a new home and the first question they hear is: “How much is this going to cost per square foot to build?”
It’s a way to understand how large of a home they can have at a price that fits within their budget. Unfortunately, this isn’t the easiest question to answer, and here’s why…
While home builders can definitely put together an average price per square foot to build a custom home based on their previous client projects and the design selections and options they offer, the cost will vary based on the client’s preferences.
If one client wants a simple home plan and design choices for their new home, the cost to build their home per square foot is going to be less than someone wanting a more complex home plan with luxury building materials.
That’s why having a design meeting with our clients at the start of the home building process is so important to us. Sitting down to understand the client’s design preferences, vision and goals for their new home will help us estimate, from the start of the project, how much they should expect to spend on their new home.
The following materials and services are often, but not always, included in the price per square foot calculation for a custom home:
It’s also important to note that when evaluating the price per square foot value on the MLS - when you’ve listed your home for sale - garages and porches are not included in the price per square foot calculation.
The same can be said for home builders. They may or may not include this in their pricing. However, it does accrue some additional cost, just not as much as you might have for interior living spaces.
Reinbrecht Homes explains this well:
“We can build a 2,000 square foot home with a 100-square-foot porch and a standard garage or we can build a 2,000 square foot home with an 800-square-foot porch and a three-car garage. Even though they’re both 2,000 square footage homes, the second one’s cost will be much higher on a square foot basis.
This also applies to finishes. We can build a 2,000 square-foot home with standard finishes and another 2,000 square foot home with high-end finishes, and there may be a $40 per square foot difference between the two.”
That’s why it’s really important to talk with your builder about what is included in this calculation.
At Hedgefield Homes, we make it very clear to our clients what is and is not included in our total cost estimate.
Since we have a lot of clients who build in rural areas outside of Fort Worth, Texas, we know land values and site development costs vary too much to include in the price per square foot calculation.
Therefore, these two areas (cost of land and site development) are separate line items to our Base House Cost calculation.
The Base House Cost (or Standard House Cost) of the homes we build include:
Additionally, options and upgrades can vary tremendously depending on our clients’ design choices for their home. So while these choices will be factored into the price per square foot metric once a house is complete, it’s not something we like to include in the initial cost to build. Instead, we include it as a separate line item.
Our cost estimates to build might look something like this:
For us, these estimates are a lot more straightforward than a price per square foot metric. And we truly want our clients to understand from the beginning that the size, complexity and design of the home is going to drive the cost of the home up. So as more rooms are added and design upgrades are made, the cost will go up.
We don’t discourage these changes and upgrades to our plans if that’s what our clients truly want; we just want you to be aware that it will change the total cost of the home so you can weigh which upgrades are worth that increase and how it works within your overall home budget. This transparency helps our clients avoid the most common mistakes people make when building a new home - going over budget.
It’s worth restating again the importance of asking your home builder what is and is not included in their cost per square foot estimate so you don’t exceed your home building budget.
Price per square foot matters for a couple of reasons:
When a new home is complete, buyers and builders are able to look back over everything that was spent and the total square footage of the home to calculate how much it cost to build.
For instance, if you built a 2,000 square-foot home and spent $250,000 to build the home, you spent $125 per square foot to build.
This number is helpful for buyers because they can see how much they spent on their home. It can also be extremely helpful information for home builders as they continue to market their services.
For semi-custom home builders who offer pre-designed floor plans and standard design options to their clients, they can provide more accurate cost estimates to these buyers so they know how much they can expect to spend on a custom home. They’ll understand if they make plan changes or design upgrades, the cost of their home will increase.
After your home is built, you may want a new appraisal done of your home. Whether it’s to qualify for a home equity loan, refinance or resell, the appraisal will give you the total home value.
Appraisers look at the size of the home, the options and features, the design choices, as well as the location and market values to come up with an appraisal value of the home, which also gives the price per square foot calculation.
For buyers, they’ll look at this number and decide if the value and cost of the home is too much or too little within that market. If it’s too much, they may negotiate that number down; if it’s too little, they may fear something is wrong with the house and not want to buy.
As we talk about in our article, How Much Does It Cost to Build a Custom Home on Your Lot in North Texas, the cost to build a home depends on a wide range of factors.
In our build area of North Texas, our average customer spends about $275,000 on their custom home, with the average cost to build being $170,000 to $345,000 (the cost of land not included in that estimate). Looking at our floor plans, you’ll see that our floor plans range from 1,200 to 2,645 square feet so a quick calculation shows you that our average cost per square foot to build is $130 to $141 per square foot.