In 2017, the average cost of building a custom home was about $443,000. The estimate assumes a single-family house with 2,800 square feet, making the average cost around $153 per square foot. That’s the short, technical answer.
Of course, the real answer depends on a range of different variables, including materials, labour, location, size, and current trends in real estate. These factors make it difficult to provide a single answer that everyone can rely on. Not to mention, there are other costs involved that most don’t think about, such as getting a 20-yard dumpster from dumpster rental to haul away debris.
Let’s break down each stage of building a house and explore the average cost of each process.
Before the Build
Think back to the tale of the Three Little Pigs. Only one of the pigs took the time to carefully construct a stable house out of bricks, and his home was the only one left standing by the end.
The same concept applies in real life: It is necessary to build a budget brick by brick before building a house.
Buy the Property
Obviously, it’s impossible to build on land that someone else still owns. If this transaction hasn’t happened yet, a quality real estate agent can help facilitate the process. These buyer’s agents will hunt down the best deal for a piece of land in the right location for the build. Good agents can also figure out which hidden gem neighbourhoods are worth getting in early on. Over time, the property will become much more valuable, which is always a good thing!
Arrange the Plans
Lots of decisions must happen after buying the property. Through each phase of construction, there are dozens of choices to make that all impact the result of the house. That’s why it’s crucial to first create a detailed vision of the desired home, and that means more than the finishes and how many rooms will be inside. Without a predetermined budget, there will be change orders to make along the way.
Change orders refer to parts that need to be removed from the plans or added to them. Not to mention, builders hate having to change the plan in the middle of the work order.
Breakdown of Building a Custom Home
To prepare for all the choices that need to be made along the way, this article breaks down the average cost of building a custom home into its various stages, starting with the site and ending with landscaping.
Site Work: $15,000
After choosing and buying a property, it is necessary to pay for site work. That includes permits, inspections, and the actual building plans before constructing anything. In this area, the most expensive aspects are the fees involved for sewage and water inspections, running about $5,000 altogether. After that, the building permit is the next most expensive, running about $4,000 depending on location and size.
Architecture and engineering add another $3,000 to the final cost. For best results, stick with an architect and builder team who can develop a stable plan together. It’s too common for an architect who knows nothing about proper building construction lure in new customers with fantastic pictures that could never be realized.
Of course, the government will also want its fair share of the budget; an impact fee will cost about $2,000. The impact fee pays for public services in the community, like water treatment, parks, and road maintenance. Finally, leave a couple more thousand as a buffer in case costs are higher than expected.
Once all the permits and inspections are out of the way, the real fun can begin!
Foundation work is where the builders literally break ground for the new home. Also known as excavation, the process of breaking ground requires experts to operate heavy-duty equipment and ensure the land of the lot if completely level before getting started. Be aware that if major rocks are hiding underneath the ground, the cost of excavation can suddenly rise fast.
Once the ground is level, the builder will then work on laying the home’s foundation. This is usually a mix of concrete and lumber. Homes that will come with a new basement will naturally cost more than homes without a basement simply because there is a bigger surface to cover. Additionally, the new construction may need retaining walls to stop the surrounding soil from falling apart and spilling onto the foundation.
Foundation work involves special equipment, labour, and new materials, so expect the cost to hover around $25,000. As always, budget a couple extra thousand in case of fluctuating costs.
A complete foundation sets the rest of the home up for success. Don’t rely on a straw budget here or else there could be crushing costs down the road.
With the exceptions of the sale price and the cost of furnishing the inside, framing is the most expensive part of building a custom home from the ground up. It is also, however, the point where the new construction starts to take shape. Lots of lumber is needed to build the skeleton of the house, which includes underneath the roof. All that wood adds up to about $35,000 on average.
If the cost of building the roof doesn’t include trusses, which are the triangle-shaped structures meant to add support to the roof, expect to pay another $5,000 at this point in the process.
The sheathing is the next stage for the home construction once the skeleton is complete. In most cases, these are just flat boards that protect the construction, acting as a sort of skin for the bones. However, one can expect the cost to go up a bit when opting for steel or other metal materials.
Building a home’s exterior is an expensive part of the process because it covers a house’s entire perimeter, and that takes materials. The exterior also supports the structure of the home as well as the roof. Not to mention, it is also meant to keep the weather outside where it belongs, leaving the inside nice and dry.
Finishes added to the exterior include windows, doorways, and any garage that is built. Depending on what is chosen, this can add another $10,000 to the $15,000 spent on the exterior walls. Roof finishes will likely also cost another $10,000. Again, expect to have a bit of a buffer for this category.
Installing Major Systems: $33,000
Installing major components inside the new home will cost roughly as much as it does to finish the exterior. The term “major systems” refers to things like electricity, plumbing, and HVAC, each of which will run about $11,000 to install. Sure, it is possible to shave costs off the budget here, but it seems worth it to avoid outdoor plumbing or living in a dark home.
Keep in mind that these price tags do not include the cost of buying the actual fixtures, like lights, the toilet, and the sinks. These items are covered at the interior finishing step. Regardless, keep a small buffer in this category in case hidden costs crop up.
Interior Finishes: $70,000
This is the part that makes most wallets wince. Aside from the cost of buying the land, the interior finish is where people end up spending most of their budget. Considering the inside is where the homeowner will live and make their memories, that makes sense.
At this point, it’s entirely about preference. Are granite countertops an absolute must? How about hardwood floors or stainless steel appliances? The finishes will add up regardless of the final decisions made, but there are lots of decisions to consider. Here are the expenses that need to be considered for budget distribution:
Final Touches: $20,000
Once the home is built and the interior has been finished to the homeowner’s liking, there are just a few more bricks left to add to the budget.
The final touches include landscaping, building a new driveway, and building a deck, patio, or porch if these are part of the original construction plans. Lastly, the cost of getting a 20-yard dumpster from a dumpster rental for the cleanup can cost a couple more thousand.
Miscellaneous Costs of Construction: $5,000
Beyond the buffers set for each category listed above, most home builders will want to set aside an extra $5,000 as a further cushion that goes toward the overall cost of construction. Plan for that for the best results.
The Sale Price: $200,000
The final brick to the custom-house budget is the sales price, and it’s the heaviest brick by far.
During a standard transaction in which a buyer seeks to acquire an existing home from its owner, the seller of that home gets to decide the price along with an appraiser and the seller’s real estate agent. When building a new custom home from scratch, the price of the sale is determined by vendors and the builder.
The cost of construction is handled on its own, but then the cost of purchasing the home and owning it involves additional line items not involved with construction. The most expensive of these new line items is the finished lot cost, which runs about $92,000.
Of course, the builder and the vendors they work with all need to make a profit, which adds up to just under $50,000 altogether. Additionally, there are general overhead and expenses ($25,000), sales commission ($15,000), as well as financing and marketing ($13,000). After all, the crew and the future homeowner can’t ever meet if the marketing team doesn’t get word of the company out to the community.
Is it Cheaper to Build or Buy?
After it’s all said and done, it’s natural to wonder whether it’s possible to save money just by getting a home that is already built. As mentioned before, there are too many factors that influence the cost of a transaction that it’s impossible to make a definitive statement that applies to all people. Everyone has their own idea of a dream home, and the costs vary with that idea.
Compared to the average cost of building a home ($443,000) and the average cost of buying a similar home in 2017 ($291,000), it’s easy to be startled by the whopping $150,000 difference in cost. However, these are just averages, and the actual cost of both transactions vary. Not to mention, only a custom home will meet the exact needs of a homeowner.
Is Building a Custom Home with Cash Affordable?
Those who have the cash to pay for their new home within their budget should do so. The only fees to worry about after the home is built will be homeowner’s insurance, property taxes, and any HOA fees if they apply to the property.
Most future homeowners cannot realistically pay cash for a new home with cash. In this case, it’s important to know how much house one can afford to build in the first place. It is wise not to build a home that will require a mortgage except for a fixed-rate conventional mortgage over 15 years. The payment of this mortgage should be no more than 25 percent of a family’s take-home paycheck.
Mortgages that cost more than a quarter of take-home pay and also charge high interest will force homeowners to sacrifices their other savings goals.
Ready to Build?
Preparing to build a custom home is no small undertaking. Get started by talking with an experienced construction crew who knows the full process and can answer any questions along the way.