How do you do a house building cost breakdown? That’s a question we often get from our readers. The fact is there are numerous ways to break down the cost of construction. One is to list all the materials, all the labor, and the cost of the land separately. The list of materials includes hundreds of items, and specifies things like how many pounds of nails are needed, and how many board feet of various sizes of lumber will be used. It lists your floor covering choices, and cabinet choices and how much of each thing you need. Your home builder can supply you with a list like this for your home. Insist that your contract contains a copy of this breakdown, and refers to the home plans as well.
Another way to break down construction costs is to rely on statistics to average the percentage of total house costs which go to each category of expenses. These figures have always varied somewhat from one builder to another, and with the advent of modular, green and SIP construction the variations are much greater. Comparing shell homes would further confuse the issue. For the purpose of this article we will stick with conventional stick built on site construction, built by a general contractor hiring subcontractors. The average breakdown of costs, according to various surveys of homebuilders, looks something like this:
House Building Cost Breakdown: Land
Cost of Land – 7% – 10%
Cost of Improvements to Land 10% – 13%
Total Cost of Finished lot – about 20% – 25%
House Building Cost Breakdown: Construction Cost
Labor – 25%
Materials – 25%
Total Construction Costs 50%
House Building Cost Breakdown: General Contractor
Gross Profit – 20% – 25%
Finance – 2%
Sales – 4% – 6%
Administrative and other – 4% – 6%
Total Operating Expenses – 10% – 14%
Profit Margin before Taxes – 6% to 17%*
*6.3 is average nationwide, but actual figures from the top 17 builders show that their net profit margins before taxes range from 4 percent to 17 percent.
House Building Cost Breakdown: Miscellaneous
Building Fees, Permits and Licenses – 2% to 3%
Outside Sales Commissions – up to 3%
Insurance – 1% – 2%
House Building Cost Breakdown: Financing
Construction Loan – 2%
30 Year Mortgage – Interest is about 100% of your purchase price*
*With a 30 year mortgage you pay about double the price of your home, because you must pay interest as well as principle!
Land costs vary considerably, depending on location. In addition it costs a bit more initially to set up a well and septic, than it does to hook up to city or community water and sewer. Over time however, you may save money by not ever having to pay a water bill.
The obviously frightening number in this list is the interest. Even at today’s low rates, stringing a mortgage out of 30 years is going to cost an amount approximately equal to the cost of the home. The best way to take advantage of today’s low rates is to take a 15 year mortgage. It is also a good idea to save money to make the greatest down payment possible. You may also consider building a smaller home to save money on interest as well as cost.
With the advent of modular construction, and structural insulated panel construction, there is much less labor involved in building a home of that type. It is also important to note that by buying a shell home, the cost is much less, but there is a lot of labor which will have to be done by the home owner, or other contractors. One must calculate the price of other sub contractors and additional materials needed when considering a shell home. It’s not uncommon to find shell homes for $20 to $25 per square foot. At first this seems like a bargain, but when you consider that you will have to spend more for materials to complete this home, and possibly hire a few sub-contractors, you will need to get out your calculator to find out how much you are really saving. In general, the shell labor and materials of any construction fall into the $20 to $30 price range. It is the rest of the labor and materials and contractor profits which amount to the other three quarters of the cost. The average cost of construction is about $80 to $120 per square foot.
As you can see it is fairly simple to say that one-fourth of the cost of your home goes to the labor of subcontractors. Another fourth goes to the materials. One fourth goes to the land, landscaping, drive ways and etc. The final quarter goes to the general contractor but there are many expenses the builder must cover. While the company may gross up to 25% of your home’s price. Most builders only have a 6% profit margin, with extremes on both ends between 17% and 4%. Cost breakdown is simple concept, no matter how you break it down. A house building cost breakdown is basically an itemized list of how much your home will cost.