How Expensive Is It to Build a House? A Real Estate Agent’s Perspective

Whether you’re moving out of an apartment or relocating for a job, you can either build a house from scratch or buy one off the market. The main advantage of constructing a new home is that you have total control over the finished product and its design. Before you choose to build a house, it’s highly recommended that you consider the costs associated with this type of project.

Building a house involves finding the right location, procuring materials, and hiring contractors. While high-quality materials usually last longer and make a home more appealing, you must also have enough room in your budget to hire reputable contractors. The size of your home also plays a role in determining costs. If you want to build a larger home with thousands of square feet, you might need to sacrifice some of the premium materials you’re interested in.

Building a home from the ground up requires a comprehensive budget. Mapping out what each aspect of the project will cost is necessary to ensure you don’t spend too much in one area. Keep in mind that there are some hidden costs that could impact your budget, which include permit fees, utilities, and project delays.

When you’re considering the costs of building a home from scratch, it’s important to understand these expenses from a real estate agent’s perspective. For example, a more unique material that you find appealing may not be worth the cost if it doesn’t do much for the value of your home. In this guide, we answer the question “How expensive is it to build a house?”.

Factors Influencing Building Costs

From location to materials and finishes, there are many factors that influence building costs.

Location and Land Costs

Before you can start building a home, you must buy the land, which means that you’ll need to research different locations to find the one that’s right for you. If you intend to move to the area with your family, you may need to check local school systems and learn more about the neighborhood.

The land you choose can play a major role in the total costs of your construction project. Along with the price of the land, you must also consider if it will be difficult to build on. More unique and challenging lots come with higher construction costs.

There are also big differences between urban and rural land prices. A plot of land in a large city often costs more than one in a rural location. However, building a home in a rural location means that you might not have easy access to shops and restaurants.

Building your home near a city can also be advantageous because you’ll have access to city sewage and water, which will keep you from spending a large sum of money on installing a septic system and a well. Some of the other land-related costs you must consider include tree removal and the backfill process for uneven terrain.

Size and Design

When you design a custom home, you’ll need to plan for interior and exterior, footings, roof, and foundation elements. The size of your home is a key differentiator in the total project costs. Larger homes come with higher design expenses. When you work with architects, the cost of designing a two-story home with a floor plan of 5,000 square feet will be higher than what you pay to design a building with 2,000 square feet.

However, the size of the home isn’t the only design factor that affects the price. A simple home design will cost less than a complex one. A complex design requires additional materials, more labor, and higher engineering hours. In comparison, a simple home doesn’t need as much raw materials, which means that it should cost less.

Materials and Finishes

A large percentage of your budget will be spent on materials and finishes. High-quality materials typically cost more than low-quality ones like precast concrete and prefab panels. The type of materials can also make a difference in how much you spend on your project. For example, natural materials like stone and softwood lumber are more difficult to source, which is why they come with a higher cost.

Keep in mind that your budget will also be affected by high-end finishes and custom features. For example, you’ll need to pay more to use marble or granite when building your kitchen countertops. While hardwood floors and custom cabinetry can enhance the value of your home, the upfront costs are higher.

Construction Costs vs. Market Value

Construction costs don’t always align with market value. Don’t spend too much time calculating the cost per square foot to construct your home. Property values can increase or decrease based on many different factors, most of which are out of your control.

Construction Costs Breakdown

The cost per square foot of building a home varies by region. For example, building a basic home with builder-grade finishes in North Carolina can cost anywhere from $180-$250 per square foot. In California, the same house can cost around $200-$600 per square foot. Your expenses might also differ depending on where the home is being built. For example, you’ll spend more in Los Angeles than you do in a rural place in Southern California.

The key components that make up your total construction costs are permits, utilities, labor, and materials. When you hire a general contractor, the price you pay for their services depends on their experience and skill level. You’ll need to hire skilled labor in different trades, which include plumbers, electricians, HVAC experts, and roofers.

Utility costs can also be high. When you start from scratch, you must install new water, gas, electricity, and sewer systems. Make sure you consider permit fees as well. In some locations, permitting costs differ depending on the type of home you build and its size.

Market Value Considerations

Make sure you consider how the final market value of your home will compare to the construction costs. While home appraisers consider construction costs, many additional factors are part of the equation. Market trends may also impact the value of a newly built home. If you build a home in a thriving real estate market, you may be able to sell it for much more than you paid to construct it. However, building a home in a market that’s not performing well means that the value might not exceed your construction costs.

Hidden Costs and Unexpected Expenses

Before you start building a home from the ground up, there are a few hidden costs that you should be on the lookout for.

Permit and Licensing Fees

You can only construct a home after your city or county provides you with a building permit. These permits are necessary to ensure that your home meets all local building and safety codes. The cost of a building permit for a single-family home can range from $150-$2,000.

Unforeseen Construction Issues

There are also some unforeseen construction issues that could impact your project and cause expenses to skyrocket. Some of the more common issues that occur during construction projects are:

• Project design mistakes
• Bad project management that leads to errors
• Miscommunication with construction crew
• Incorrect cost estimates based on scope creep or increases to material costs

Post-Construction Costs

Some of the post-construction costs that you may need to pay for include landscaping and furnishing. For example, post-construction cleanup can cost anywhere from $250-$1,250.

Financing a New Build

When financing a new build, you’ll need to obtain a construction loan. Once you finish the construction process, this loan can be converted into a traditional mortgage. Construction loans fund the entire building process. You can cover the costs associated with the land, contractor labor, permits, and building materials.

Cost Management Strategies

To stay within budget during your construction project, work closely with contractors and architects who have experience avoiding scope creep. Follow the tips below to avoid cost overruns:

• Use new technologies during the construction process
• Buy mid-range materials that don’t cost too much
• Hire reputable contractors and architects
• Limit the amount of construction waste that occurs
• Don’t purchase appliances right away
• Communicate with the project manager to avoid delays

Comparing Building vs. Buying an Existing Home

If you’re considering buying or building a home, think about performing a cost analysis. It’s a good idea to compare the costs of new construction with the total purchase price of an existing home. The average sale price for a home that’s newly built is $534,000. The average home price of an existing property is around $387,000.

When you’re weighing the costs of building a home from scratch with the price of a home on the market, there are a couple of factors you’ll need to consider. For example, an existing home may need renovations to make it livable. It will also come with higher maintenance costs. There are too many variables to determine if it’s cheaper to purchase land and build a home than it is to buy an existing one. The costs are typically comparable.

Advantages and Disadvantages

When considering your options, weigh the advantages and disadvantages of buying vs. building. The benefits associated with purchasing an existing home include the following:

• Fewer risk factors
• Home should be in move-in condition
• You can renovate and make upgrades to personalize the home
• Pricing can be negotiated
• Landscaping is already in place

A few of the drawbacks to buying a home on the market are:

• The process can be stressful because of rejected offers and bidding wars
• You might encounter maintenance problems that must be fixed
• Compromises are often needed on the style of the home
• Older homes may be built with hazardous materials
• Lower energy efficiency

The benefits that you’ll get when building your own home include the following:

• Buying your preferred piece of land isn’t as difficult as finding a dream home
• New homes usually come with lower maintenance expenses
• You can customize every facet of the home to suit your personality and lifestyle
• The home can be equipped with modern amenities

However, this process comes with a few drawbacks, which involve:

• Some locations don’t have much available land
• Construction costs can be high and are more difficult to control
• Personalizing your home might negatively affect its resale value

Conclusion

Building a home is a complex process that involves a lot of moving parts, all of which come with a cost. Now that you understand how expensive it is to build a house, you can start creating a budget and hiring the right professionals to translate your ideas into a new home.

From a real estate agent’s viewpoint, it’s important to consider how the materials you buy and the features you add will increase the value of your home. For personalized advice on what it takes to build a house, consult with experienced professionals.