What is cost per foot?
As explained in the previous blog, the cost of a custom home is primarily driven by the customer therefore cost per foot is often misused in comparing custom builders. That said, it is a standard of measurement that has long been used by home buyers so it is important to use it knowledgeably.
First of all, you need to know what area of the home the standard is being applied to, the “total building area” or just the “living area.” Living area includes only areas of the home that are heated and cooled whereas total building area also includes non living areas such as the garage, porches, and patio areas. An easy way to determine the total building area is to add the square foot of the foundation plus any upper level living area.
Typically, the cost per square foot of a home is applied to just the living area. For example, if a home with 2000 square feet of living area and 500 square feet of non-living area were to cost $250,000 to build, the square foot cost would be $125 based upon the total cost divided by the living area ($250,000/2000). In our example, the ratio of total building area to living areas is 2500:2000. The cost of non-living areas obviously add to the overall cost of a home and thus adds to the cost per foot. That is why most production type homes have a low ratio of total building area to living area in order to reduce the cost per foot. On the other hand, custom homes tend to include a high ratio of of total building area to living area, thus driving the cost per foot upward.
Production homes are typically purchased on the builders lot, therefore the cost of land is normally included in the cost per foot. Custom homes, on the other hand, are usually built on the customer's land so it is not included in the cost per foot, however, custom building sites often require expensive site work costs such as onsite sewer treatment systems, utility services, grading, excavating, and even tall foundations to accommodate slope. These costs, although typically included in the building contract as part of the total scope of the project, can add significantly to the cost per foot. From a more realistic perspective, site work costs should be considered as additional land costs to make the site buildable.
In conclusion, the standard measurement of cost per foot is often more misleading more than beneficial, especially when comparing custom builders.