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HOW MUCH WILL IT COST? (PT 1&2)


I’m glad you came to my architecture office today to share your goal of building your own home. I hope I’ve been able to answer all your questions. You say you have one more -  how much will your new upstate New York house cost?  Probably, it will cost more than you thought. I know you didn’t want to hear this, but it’s better that we discuss it now. Would you like to sit back down?

I think it’s important to share some common reasons that lead people to start out with misconceptions. Understanding these – and learning to watch out for them – will help you make sense of all the input you’ve received. And I know you’ve received lots of input.

First, didn’t your sister-in-law tell you at Thanksgiving that her cousin built a house in Florida for $100 per square foot (psf)? But keep in mind she may not have known that his part of the Sunshine State requires no insulation and no expensive heating system, and her cousin didn’t count his “sweat equity” even though he’s a carpenter and saved $80,000.

Next, your quick internet search revealed that the national average for a new house last year was $110-$160 psf. However this includes mostly developer-built projects, tract homes, some architect-designed residences and a few mansions.  It’s hard to know what “average” really means.

Lastly, you just spoke with a contractor who warned that cost-per-square-foot is a terrible way to compare construction costs. Then he said not to frighten you, but he just completed a small home that ended up costing close to $300 psf.

Nobody is wrong, but without more information, little of this is relevant. There are six variables to watch out for:

  • Geography. Given geographic differences in climate, systems, material and labor markets, many published rules of thumb or blended national averages mask the actual costs and specific issues we’ll face designing your house here in upstate New York. I’ve also found that a house site’s physical distance from centers of commerce, construction and competition will have a direct impact on the cost. Ignore these variables at your peril.
  • Size. All other things being equal, a smaller house will have a higher cost per square foot than a larger one. Why? Mostly this is due to economies of scale and spreading out the identical small- and large-house staging costs of each building trade over a larger floor area.
  • Confusion. What does cost-per-square-foot really mean? The answer is, it means different things depending on who’s saying it. For a single 2000 sf home that cost $400,000, one calculation might include the garage area, basement square footage and outer wall thickness and say it cost $100 psf. The other, using only the heated “habitable” space in their denominator, will say it cost $200 psf. Don’t say I didn’t warn you.
  • Inflation. The cost to build a new home has increased 3-6% per year. So it’s easy to see how data from houses completed in the past three years might mislead you as you compare them to your house (being constructed over the next two years). Using old numbers can add up to a cumulative “whoops” of 16% or more.
  • Optimism. The same part of your brain that really believes you will get 50% off when the sign says “SALE: 10%-50% off” can lead you to hear $110 psf when you read “$110-$160 psf.” In reality, maybe you should have heard $160 psf (in 2008 when the 2007 data was published) and therefore $185 psf in 2012 when construction will occur.
  • Scope Creep. Also known as Death By A Thousand Cuts. These are the incremental changes in the project that are hard to track, almost inevitable in some form, and rarely accounted for. After all, there are a thousand decisions to make during the development of the design. If you make a hundred decisions that vary from initial assumptions, and each adds $300, you’ve tacked $30,000, or maybe 10%, onto the price of the house! These could include choosing three, $400 uncloggable toilets; forty, $5 brushed stainless steel switchplate covers; or adding the $20 per window “low-E coating” to your 15 windows. Or maybe you add a few windows, a few square feet a few inches of ceiling height, a wood stove, and a Viking refrigerator. Who saw it coming?

While cost-per-square-foot is therefore the handiest way to package and discuss the possible cost of your house, you can see it also disguises differences, ignores obvious variables and misleads smart people with firm budgets.  Is there a better way for you to get a realistic handle on what your future home will cost at this early stage?


PT II


Welcome back! Last month you came to my firm to talk about building your own home. At the end we had a terrific discussion about many of the reasons that off-the-cuff estimates can be misleading. These misconceptions include:

  • Geography –  comparing costs from locales with different climate, systems and labor markets
  • Size –  ignoring economies of scale when comparing large and small homes
  • Confusion –  not knowing how the source of cost-per-square-foot data calculated the denominator
  • Inflation –  using 2008 numbers for 2012 construction
  • Optimism – blindly clinging to the low end of the estimate range
  • Scope Creep – making many small changes during the design stage which add up

“How can I even start the process if I don’t have a sense of what it might cost?” you say. “I won’t hold you to it, I just need a rule-of-thumb,” you say.  All good points. You want an approximation; an order-of-magnitude; a ballpark figure; a guesstimate; a budget number; anything, something to move the conversation forward. You need to talk to your banker, your broker, your financial advisor and your spouse, and do some soul-searching.

So I set to work on a new way to answer the fraught-but-legitimate question, “How Much Will It Cost?”

Here is an answer for you. I call it the “$30,000 Rule”. It was conceived to work for the regions in which I build and the clients for which I design, for the year 2011, and inevitably it is derived from the quality and character of the homes designed by my firm. But don’t worry, there are only ten steps.

THE $30,000 RULE

  • STEP ONE. For house of small to average size, start with $30,000 for each 200 sf of living space you want. So, the “base” 1600 sf house comes out at $240,000 and a 2000 sf house starts at $300,000. This is for a relatively simple geometric form, with neither basement nor an attic big enough to use for anything.
  • STEP TWO. If you’re building a home in a field or forest (as opposed to a village or city neighborhood) and need to provide infrastructure, utilities, water, septic, driveway, landscaping, add at least $30,000. OR, if your future home is at least an hour’s drive from a skilled, competitively-priced labor force, add $30,000.
  • STEP THREE. If you want a tight, well-insulated envelope, with superior windows and the heat recovery ventilation you’ll need in winter, all of which will save energy and money in perpetuity, add $30,000.
  • STEP FOUR. If you want hydronic (hot-water), in-floor heating fed by an electric-powered ground-source heat pump powered in part by a photovoltaic array, add $30,000 (after rebates and incentives).
  • STEP FIVE. If you want lots of height and volume in your living spaces, perhaps skylights or clerestories to bring in natural light, add up to $30,000.
  • STEP SIX. For less common or more durable materials/finishes throughout, including steep roofs, planted roofs, true standing seam metal roofs, western red cedar shingle roofs, more expensive interior finishes (especially for the kitchen, bathroom and flooring), or stone (real ones) or brick in any quantity inside or out, add $30,000.
  • STEP SEVEN. If you want a garage, add up to $30,000.
  • STEP EIGHT. If you like ample outdoor constructed spaces then for things like a big front porch, a back deck or patio, a screened/three-season room, a small balcony, etc, add up to $30,000.
  • STEP NINE. For good measure and for all the things left out or added in later, add a $30,000 contingency as you plan.
  • STEP TEN. Pay the soft costs up front: surveyor, architect, permit fees, soil borings, etc. Budget up to $30,000.

Meanwhile, keep in mind that each $30,000 you borrow will add $160 to your monthly mortgage (assuming a 30-year term at 5%).

That may be a less abstract way of gauging the value of each incremental adjustment: Can you afford $160/month to stow your car and your lawn mower? Will you save $160/month over the next 30 years from your solar-powered heat pump? Are the 15’ x 13’ dining room, or those 2 large walk-in closets, or the extra bathroom and formal entry each worth $160/month for the next 30 years?

So, thanks for coming. When it comes to talking with clients about budget, I’ve really come to believe in Early and Often. I believe that this open approach starts with a workable, flexible, reality-based, locally-sourced tool like “The $30,000 Rule.” It lays the groundwork for a smoother, illusion-free, collaborative design conversation, one that will result in a home where you can find great pleasure, inspiration and peace of mind.



 

Rick Hauser