Armchair Builder

Costs to Build For Owner-Builders

Estimating Costs to Build

Estimating Costs to Build

The National Association of Home Builders conducts a yearly survey of professional home builders for the detailed costs to build a new home.  The results of this year’s study was published last week.  This New Construction Cost Breakdown by the NAHB, can be very valuable to the owner-builder as it gives average costs across the country for each line item for building a new home.  Let’s review the major cost items and discuss how it can be used by owner-builders to help in estimating, bidding and budgeting their new home building projects.

Each cost to build is shown as a percentage of the total sales price.  Average Home Size = 2311 square feet.  Average Sales Price = $310,619.  Average Lot Size = 1/2 Acre (approximate)

Cost of Construction:  59.3% These are all of the direct costs to build a new home including labor, materials, permits, inspection fees, impact fees (fees charged by local governments to help pay for additional burden on schools, libraries, roads…etc.), trash removal, cleaning, and insurance.  So if your new home’s final market value is projected to be $250k, your cost of construction will be approximately $148k based on this percentage.  One of the advantages you have as an owner-builder is the freedom to hire anyone you want to have work on your project.  You may reduce your labor costs by doing some of the actual labor yourself or by hiring friends and family that are in the contracting business.  Many of the owner-builders I have talked to have a cousin with a plumbing company or a friend that is a material supplier.


Developed Lot

Lot Cost:  21.7% This is for a developed lot.  Meaning, all improvements have been done to the lot including construction of the roads and utilities are run to site.  This goes along with my 20% rule which says that for the average newly built home, the lot should be roughly one fifth of the total market value of the home and property after the home is complete.  Of course this average is skewed when you are looking at larger parcels of land or land with specials views/locations (example = waterfront property).

Financing:  2.1% Whether you build your home as an owner-builder or you have someone build it for you, financing will be a cost in your budget.

Builder Costs, Overhead and Profit:  16.8% This number has dropped several percentage points due to the real estate debacle. With all other costs being equal, we can safely assume builders are making less money…as you would expect.  As an owner-builder, you will most likely choose to hire several key members for your team to help build your new home.  You will assemble your team which will typically include an architect, builder consultant, attorney, and soils engineer.  The costs for this team will come out of this 16.8% .  Keep in mind, for the average home sales price discussed here, 16.8% amounts to about $52k.  This leaves plenty of money to hire your team and still have money left over in savings if you are careful with costs.  What do I mean by careful?  Let’s say you decide to hire an architect to design your home from scratch.  This cost item alone can cost $20k or more.  In order to maximize your savings, you should look at all alternatives for creating your home plans.

By reviewing the line items of the NAHB’s Single Family Cost and Price Breakdowns, you will have a good idea of the rough costs to build your new home.  By adjusting the costs for your particular lot and home, you should be able to determine if a given plan will fit your budget.

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