Why does a new construction home cost more than a previously owned home? Is it because the builders are cleaning up and making extra money? Not really! Over the past years, permits are down and some builders have even left the building business. Let’s take a look at what costs go into a house and see where it all goes.
First things first, a key component to the selling price can be driven by how much it cost the builder to buy the land, but other factors such as building materials and amenities also play a role.
When a builder purchase a piece of land, it is just the beginning and costs will be affected by the siting of the house; engineering needs; utilities and their location; tree removal; distance from the road and length of driveway; excavation costs and potential blasting; well or septic installation and considerations; dumpsters and portable toilets are just some considerations from the land perspective. The local township will dictate the cost of any permitting as well as any additional taxes or impact fees and in some communities, these costs can add up tremendously and many times are upfront costs when obtaining the permit and can be up to $10,000 or more!
All of these are considerations and the sticks and bricks part of the home has not even begun while behind the scenes, the builder may have paid for a draftsperson or architect for the floor plan and construction drawings as well as an estimator to ensure that the costs are correct on the proposed building. Some costs associated with builder are subject to the economy, availability and natural disasters such as drywall, lumber and other materials and their costs can fluctuate which affect the bottom line. This can be somewhat of a gamble and a good estimation is critical so the construction does not go over budget. A builder also needs to finance all of this and just like a homeowner’s mortgage, there are monthly costs that a builder pays in addition to the closing costs to get the financing!
There are materials and labor costs and depending upon construction activities can also affect the building of a home. A builder will contract for foundation drains; concrete work; framing; fireplaces; plumbing; electrical, insulation; drywall, painting; trim work and flooring. All of these steps not only require coordination and timing but also costly. Just think if gutters; sprinkler, central vac or security systems are added. What if the town requires a sprinkler system? These are not necessarily the costs that we think of when we are looking a purchasing a new home but they can sure add up. What about shelving, mirrors, landscaping, driveways and cleaning? There are so many elements included in a new construction home that you can see why homebuilding can help an economy keep moving ahead. It is difficult to answer the question from a potential buyer about how much it costs to build a home as it is dependent upon what selections and quality grade of components a buyer wants. Work with someone who is experienced in new home sales that can help you meander the process.