By Mike Bodeen · 19 March 2018
There are two professions that I believe to be the most difficult and challenging and in which I would not ever opt to enter. One is to own and operate a restaurant. The other is to be a new home builder. The financial and personal risks can be rewarding for sure, but the downside financial and personal risk is huge. Since I’m not in the food business, I’ll be discussing what the sharing the cost of building a new Scottsdale / Phoenix home is.
In part one of this discussion two weeks ago we talked about buying in a new home development. Last week we discussed where we could find a parcel of land to build on in the valley and the costs therein.
Most of us at some point in our lives wonder what it would be like to build a home from scratch. In the early days of my real estate career, I lived and worked in the Truckee, Lake Tahoe area in the Northern California Sierra’s. We had thousands of local lots to choose from. NorthStar at Tahoe and Tahoe Donner were two upscale developments with awesome outdoor amenities such as golf, boating, hiking and skiing. We sold lots of lots. We worked with local builders and lenders to help our clients facilitate the process. At that time, we were ballpark quoting $100 per square foot (psf) to build a new home. Most builders had their own stock plans of homes they built. That did not include land cost, but figured a level building pad, which most were not.
Over the years I’ve witnessed builder after builder thrive and many dive. Building your own home, even with a professional contractor is not for the faint of heart. Unless one has formerly built a home from scratch, I DO NOT recommend that anyone act as an owner builder. Okay is that enough caveats?
Building a home in the Valley from scratch is costly. People often think of ways to cut costs in the process, including being an owner-builder. Hiring design professionals can range from 5% to 15% of your construction costs. If you’re hesitant to hire an architect, ask your builder to submit a design. Their costs typically rangefrom $1.50 psf to more than $2.50 psf for their designs. If you have a stock floorplan, you can minimize architecture and design fees, though all plans will need engineering.
The internet has some information about building costs, but this is only a starting point and is very, very general at best. You will never know the real cost until you sign the builder’s contract. And even then that will probably not be the final cost, as there may be clauses in the agreement to (rightfully) protect the builder from unknowns. Unknowns can include soils issues in the site prep, materials cost changes, and of course, any additions the owner adds on. One common misunderstanding between builder and owner is in the costs of upgrades once the home is being built.
The owner asks, “Is it possible to remove this wall, add this wiring, change that countertop?” The builder answers, “Sure, no problem.” The buyer’s thinking that means at no additional cost. The reality is that ANYTHING can be changed – FOR A PRICE.
Unless it’s in writing it’s just talk. In my research it seems that an average building price range for a custom home will be $150.00psf. This will get you a quality, but average home. High end custom home builders with top end finishes can run $300 psf or more.
Home buyers can save up to 15% of a home’s cost in a new home development.
People ask about modular and pre-fabricated homes? An owner can most often save money going this route.
This has been a simplistic analysis to a complicated and challenging process. At best it may be a starting point for someone who’s thinking about building.