“How much do you charge per square foot?”

It’s a phrase that inevitably ends up on the tongue of every prospective client I meet. Like most custom home building stories, this one begins with a prospective client reaching out to a few builders in his area. Immediately, he demands “ballpark estimates” and “average cost per square foot” in a tone full of assurance (he’s been watching HGTV with his wife a lot). The builders – although they will never admit it – secretly loathe these questions, for which there are never any right answers. After a few hours, these same builders will spew out approximate figures in rushed emails or phone calls to the unsuspecting client. As you can realize by now, this situation is problematic for two reasons: it leaves clients uninformed and uneducated and pressures the builder to provide questionable figures. No one likes being left in the dark, especially when it concerns a six-figure investment. To soothe worries and provide dearly-needed consumer education, I’ve prepared a short guide to assist future buyers navigate the murky waters of the cost of custom homes. Without further ado, let’s get into it!

 

Laying Down the Law on Ballpark Figure and Cost per Square Foot

First, it’s important to understand that the whole point of a custom home is that it is uniquely yours – undeniably and unquestionably so. It is as unique as you are – and it’s ludicrous to suggest that a cookie-cutter figure like cost per square foot could even begin to accurately convey the cost of custom homes. While “ballpark figures” are nice, they are misleading: I’ve heard more than a few horror stories of clients who were initially elated with a “ballpark figure”, only to be left puzzled as their builder laid out before them a comprehensive proposal that was – you’ve guessed it, several thousand dollars more than the original “ballpark figure”. A custom home contains thousands of price-affecting components and even the most reasonable of “ballpark figures” are not ideal. Not only do they put the builder in a risky predicament (to low ball or high ball, that is the question), but they also misguide the client about the real cost of custom homes. As I mentioned earlier, they may be in for a few surprises when the full proposal is out for their reading pleasure.

BEWARE: Definitions of “square footage” (sq.ft.) vary highly within the industry and geographical areas. In some practices, “living space” in square footage can solely include the main story, whereas the basement is excluded from this tally. In some other jurisdictions, attics and garages can also be included in the total square footage, a reality often lost on prospective buyers.

 

Cost Plus or Fixed Price?

Before we get ahead of ourselves, I believe it’s important to touch on a crucial decision of your custom home purchasing experience: the choice between cost plus pricing and fixed pricing. While certain home builders have experimented with more exotic pricing structures in the past, these two options have long remained the standard in the industry to evaluate the cost of custom homes. This is for good reason: each have their own weighty list of advantages and disadvantages, which I will briefly touch on today.

Cost-Plus Pricing

Cost plus pricing is exactly that: the cost of the entire custom home (labour, materials, permit, etc.), along with an additional fee on top of it – usually designated as the “builder’s fee”.

• Pros: Although this agreement is especially favorable for the builder, clients also stand to benefit greatly with a cost-plus pricing agreement: the transaction is hyper transparent, and corners are rarely cut quality-wise
• Cons: Cost-plus pricing can be complex, as every component of the home requires mapping out in exact detail. It is of primordial importance to have a comprehensive contract structure on hand which provides cover for all contingencies that could arise. At the same time, cost-plus pricing is dangerously vague for the clients, as it does not provide any guaranteed maximum price for the home. For this reason, it is also much more difficult to obtain a mortgage when paying for your new home on a cost-plus pricing plan.

Fixed Pricing

Fixed Pricing is remarkably uncomplicated. It is simply an agreement to build a custom home at a fixed price, which includes all costs, profit and externalities.

• Pros: While builders may be more reticent to enter a fixed price agreement, clients tend to favour the simple and predictable nature of such contracts (i.e. “this is how much we are paying, and NOT a speck more”).
• Cons: Fixed pricing is not very compatible with added costs after the initial contract has been signed by the client and builder. Since the given fixed price may not have provided certain desired options, the price could potentially rise during the project – sometimes even beyond what is covered by the client’s mortgage.

 

A Tale of Two Buyers

While I am aware that I denounced the idea of “ballpark estimates” earlier in this article, this section will have for purpose to give you a rough idea of what to expect from the cost of custom homes. After all, what is the point of reading an article on the cost of custom homes if actual prices are hardly mentioned? To be sure, what follows are NOT “ballpark estimates” but merely guidelines based on the accounts of two fictional but very typical clients – the type that I meet all the time!

 

Rob, Susan, and the Boys

2,000 sq. ft. 4 Bedroom Walk-Out Bungalow (with Developed Basement): $500,000 – $600,00

This is a busy family with three boys (poor Susan!) who are looking to expand their living space. Typically, they reside in the city, but have recently developed a strong interest in moving out to the country. Given the fact that this family has three loud boys in their teenage years, it is an absolute imperative for the parents to have their own bedroom as far away as humanly possible from them – as such, the bungalow is a perfect option (this time, it’s okay to throw your kids in the basement). A very common model is that of the walkout bungalow – 1,800 – 2,000 sq.ft on the main floor, with a large and fully developed basement. These bungalows come outfitted with all the trappings of luxurious custom homes: hardwood flooring, granite countertops, custom cabinetry, heated floors… The list could go on for a few hours! Along with this list of standard features comes a sizable set of options and upgrades, hence the broad range on the cost of custom homes like the one listed above.

 

Liv, Tyler, and the Twins

1,800 sq. ft. 3 Bedroom 2-Storey Home: $300,000 – $400,000

Liv and Tyler are a young couple who recently became the proud parents of twins. Planning for their future family, they have realized that it’s time to up-size their current living arrangements. In a way, a custom home may be the perfect choice – they are unsure about how big their family might become and thus require the deft hands-on approach of bespoke building to fit their needs. With this type of client, the furnishing tends to be as lavish and detailed as the first home, although it will usually have a decidedly utilitarian edge to it, suited perfectly for the rearing of children. As far as size goes, the living space tends to be in the 1,800 sq. ft. to 2,000 sq. ft. range across two storeys and an unfinished basement. For families like these, it is VITAL that all bedrooms are located on the same level: it allows parents to be near their little ones should anything happen during the night.

 

A Final Word on the Cost of Custom Homes

I hope this piece brought some much-needed education on the price tag of custom homes, an unfortunately nebulous but vital aspect to consider when shopping. Given that price is such a touchy matter for a lot of builders, it can be difficult to find some practical information on the topic. Whether it’s on the issue of accepting a “ballpark estimate”, adopting a fixed-price or cost-plus pricing structure, or even pricing out your home based on your current needs, I hope this article was valuable to you. Keep an eye out for more posts on this blog on the intricacies of custom homes and country living which are due to appear every now and then. Until then, see you next time.