Building Cost Benchmarks

So many uses...
Estimating, Client Management, Finance, Project Management

The question of building costs has come up in every initial client conversation I have ever had. No matter the level of construction your market demands, from the starter home to the rock star mega-mansion, the client is going to want to feel comfortable that you have a handle on the costs and are going to be working in her interest to control those costs.

In most cases, it isn't the actual amount being spent. The starter home buyer knows she can't buy a house priced at twenty times her annual salary. The rock star knows he is going to spend ten million dollars for his dream house.

What both of these people want is "value" for the money they are spending. They need to know that they are not being stupid when they trust you to provide them with value for whatever level of spending they anticipate. 

In my experience, it is not the fear of spending too much that worries most prospective buyers.  It is the fear of spending too much for what they are getting, and thereby being foolish with their money.  You must help the buyer get over that hurdle, to trust you to provide them with appropriate value for the money that they are about to spend.

A Free Template to Demonstrate Competence

To counter the prospect's fears, it is important that you be able to address the "value" question head-on in conversation with your client. One step in that process is to demonstrate that you are comfortable with, and have a handle on, approximately what it will take in terms of time, work and cost to build their house.

The free spreadsheet template requires only four inputs:

  • Square footage of living area;
  • Anticipated build cost per square foot (corresponds with level of finish in the house);
  • Interest rate 1;
  • Interest rate 2.

With just those inputs, the template will provide a very rough idea of:

  • Scheduling
  • Phase building costs,
  • Cumulative building costs to date;
  • Total building costs,
  • Interest costs at two interest rates, and
  • Rough budget.

Using the Template

This template enables us to come up with an estimate of pricing as we are talking to a prospect, provides an idea of scheduling requirements, and helps us determine if the prospect is for real or is just kicking tires.

The building cost example shows the approximate cost for each building phase for a 2317 sf, mid-level ($135/sf) house.

To use the actual template to find the build price of a starter home, you would enter 1650 sf, and a build cost of $120/sf.

At the higher end, you might enter 3200 sf at $300/sf build cost.

The template demonstrates building cost only.  Land is not included in any of these numbers, since land prices can vary so significantly, even in the same market.

The idea is to demonstrate to the prospective buyer that you understand and appreciate their need for value reassurance, and that you are willing and able to provide them with generic information that is going to help them make their difficult decisions intelligently.  

Other Uses for the Template

By the way, the template is useful also for controlling your subs.  Just check a sub's quote against this benchmark, and, if he is high, have him explain to you why he is out of line.

I am sure you will think of many ways to use the spreadsheet.

Download the free template and let me know what you think.

Money is made by managing the process from beginning to end.

This tool can help you do that.

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