There's a simple principle in homebuilding: All things being equal (location, finishes, features), a bigger house will have a lower cost per square foot than a smaller one. Why is that? The answer to that question will help you shop for the right house plan and the right builder, and maybe more importantly, help keep you from making a bad building decision.
The Truth about Price Per Square Foot
The most widely used shopping metric for homes, whether new or used, is price per square foot. Why? Because every house is unique, and there's no other way to compare. You have to use something, right?
The problem is that there's so much that affects price (or cost) per square foot. But once you know that number for the two options you're comparing, it gets very tough to understand all the differences that go into the number. Many builders of custom homes rely on that confusion and advertise a low dollar per square foot to draw you in.
Real Home Examples
Let's take an example of two houses built using the same techniques and materials with the same level of finishes and features. They both have a kitchen, two and a half bathrooms, three bedrooms, a laundry room, a three-car garage, a front porch, and a covered patio.
Now, let's say we add 100 square feet to the living room.
What did we add? Concrete, lumber, drywall, paint, and carpet. We added a little bit of electrical labor and materials. That all probably adds up to $5,900 or so, or $59 per square foot. The overall house might cost $120 per square foot, but that new square footage at $59 will bring the average down a little bit. The bigger house will cost more overall, but it will have a lower cost per square foot.”
The reason why has to do with what we didn't add when we made the house bigger. Here's what we didn't add:
- • A bigger air conditioner
- • Cabinets
- • Faucets
- • Light fixtures
- • Countertops
- • Tile
- • Water well or water meter hookup
- • Septic or sewer hookup
- • Land cost
You can do the same exercise in reverse by making one house smaller by 100 square feet. When you do that, you don't reduce any of the big costs, like cabinets, fixtures, air conditioning equipment, or land costs. With those costs still there and fewer square feet to spread them over, the cost per square foot must go up.
Larger Homes Can Cost Less than Smaller Homes
Thus, all things being equal, a bigger house will cost less per square foot than a smaller one. That's why you can't apply a universal cost per square foot number to some arbitrary house size and figure that's what a house should cost.
Take that into account when shopping and use caution when a builder advertises a low price per square foot.
