Cost is one of the most important factors to consider when buying or building a new home, so understanding what goes into the cost to build a house can be extremely helpful. Whether you’re in the market for a new home or just evaluating your options, in this article we’ll explore some of the latest reported housing data for insight about what it may cost you to build a new house.
Did you know that the average sales price for a new single-family detached home in the United States is $384,100 and the average cost to build a house is about $129 per square foot? Or that 61.1% of the sales price of a new home goes to construction costs, while 18.5% is allocated to finished lot costs and the remainder is for the builder’s financing, overhead, marketing, sales and profit?
You can learn a great deal about new homes and what it costs to build a new house through two comprehensive national reports. The most recent annual Characteristics of New Housing report from the U.S. Census Bureau and the Department of Housing & Urban Development collected nationwide new home sales and construction data from 2018. In addition, the National Association of Home Builders (NAHB) does a periodic survey of home builders to collect information about new home construction costs. The latest NAHB Construction Cost Report was issued in February 2020 and is based on a survey of builders from November 2019.
No Two Homes are the Same
Every home is different. It’s clear that the cost for a new home will be higher when it’s a tricked-out custom home with numerous expensive features compared to a no-frills starter home from a production builder. (Learn more about the differences between custom and production homes)
The point is, information that we get from the Census and NAHB reports about new home prices and construction costs has its limits. Ultimately, the total cost and cost per square foot of a new home depends on a host of factors like the home’s size, construction type, design, floor plan, features and the quality of construction and finishes, as well as the location, the lot size and the site conditions. Likewise, the builder’s reputation, profit strategy, development restrictions and market conditions also influence the price of the house. Even “identical” homes using the same floorplan will have different construction costs (based on their lot conditions) and value (based on location).
Still, information from nationwide surveys like these can be quite useful. Even though you shouldn’t use this type of information to price-out detailed construction costs for building a new house or to critique your home builder’s cost breakdown, if you’re buying or building a new home the reports can be very informative and can help you be more educated when evaluating your new home plans and budget.
What is the Average Price of a New Home?
According to the Census report, the national average sales price for a new single-family detached home is $384,100. The national average price for a new home remained flat, only increasing $100 from the prior year.
The Census report covers a variety of construction types, including attached homes, but we will focus on single-family detached housing in this article. The Census report also breaks down information by 4 geographic regions of the U.S., which is useful for demonstrating the wide range of market-based differences for new homes.
Average Sales Price for New Single-Family Detached Homes (2018)
We’ll highlight again that these are averages, and that the numbers shown here can be affected by the types of homes being built as well as the volume of new homes being built in a region. For example, the Northeast had the highest average sales price in the Census report at $623,000, but that is based on a much smaller number of new homes sold that year compared to all the other regions.
In fact, according to the data in the Census report there were 24,000 new single-family detached homes sold in the Northeast region in 2018 contrasted with 315,000 new homes sold in the South region in the same year (the national total was 548,000). That means more than 13 times the number of new homes were sold in the South compared to the Northeast. Considering the growth of the population in the Sunbelt states and the availability of lower-priced land and fewer development restrictions/costs in this region, it makes sense that a larger number of lower-priced starter homes would be built in the South and would impact these averages accordingly.
The NAHB survey uses different data collection methods (with a much smaller pool of survey respondents) to evaluate the cost to build a house and is based on a different data year. The home builders in the most recent NAHB survey reported in late 2019 that the average sales price for a new home was $485,128. That was a price increase of $57,236 above the sales price reported in the 2017 NAHB survey.
What is the Average Price Per Square Foot for a New Home?
For many the price per square foot for a new home is one of the most helpful tools for evaluating their cost to build a new house. Unlike total sales price, area-based pricing can easily be applied to different size homes.
According to the Census report, the average new single-family detached home in the U.S. sold at $128.92/sf. This information also varied significantly according to regions, with the West having the highest average cost at $161.26/sf and the Midwest having the lowest cost at $106.46/sf. These Census figures exclude the cost of the finished lot, so they only apply to the actual construction costs for houses.
Average Price Per Square Foot for New Single-Family Detached Homes (2018)
Based on the data in the NAHB report, the average cost per square foot for building a new home in 2019 was $152.50 (using a methodology that approximates the Census report by excluding the finished lot cost). Again, the data in the Census and NAHB reports differ because of their timing, sampling sizes and methodology.
Seeing that LotNetwork.com is in the business of lots and land for new homes, we find the lot cost for the new home especially relevant. You must fully understand your improved lot costs when budgeting to build a new home, and when evaluating this housing data you should not overlook the significance of the cost of the home’s lot being excluded in Price Per Square Foot calculations.
The NAHB survey reported that for the total sales price of a new home the cost of the finished lot accounted on average for about 18.5% of the price. This shows that the lot cost typically is a substantial portion of the new home’s total cost, and that 18.5% number will be a low estimate for the lot costs for many new home builds. It is not an exact science and the methods of calculating the cost of a finished lot for a new home is often disputed in the housing industry, so the NAHB’s 18.5% average in this most recent survey is not universally accepted.
Just keep in mind that whether it’s a “postage stamp” sized lot in a planned small-home community, an expensive infill parcel in a highly-desirable neighborhood, a rural homesite or an urban oasis, finished lot costs can have a big impact on the total cost of a new home. Be sure to consider your lot and land costs – including the costs of infrastructure, utilities and site preparation for the new home – when budgeting and planning for the total cost of your new home.
What is the Breakdown of the Cost to Build a House?
Where the NAHB report excels is in its breakdown of the components for building a new home. Using information reported from home builders, the NAHB survey simplifies the description of construction-related costs by breaking down the different stages of the new home construction process into:
- Site Work
- Exterior Finishes
- Major Systems Rough-ins
- Interior Finishes
- Final Steps
Of these major stages of construction, interior finishes accounts for the largest share of the new home’s construction cost at 25.4%, followed by framing at 17.4%. The NAHB’s report mostly focuses on these “Construction Cost” items, detailing the costs for each of these components that make up the home construction process.
But the items noted above that make up the “Total Construction Cost” of the new home do not include all of the additional costs that ultimately add up to the “Total Sales Price” for the home. The NAHB report details these additional expenses that are paid by the buyer as part of the sales price:
- Finished Lot Cost
- Financing Cost
- Overhead & General Expenses
- Marketing Cost
- Sales Commission
- Builder’s Profit
We prefer to look at the big picture and will provide our take on this higher “Total Sales Price” perspective too, as this amount reflects the full price the home buyer pays for their new home (not just the contractor’s cost to build the “vertical” house). In other words, we crunched the numbers for you here to look at all the various costs to build a home that are included in the Total Sales Price instead of just the builder’s jobsite-focused Construction Costs. Our infographic for “The Cost to Build a House” is based on total sales price too.
Cost of the Finished Lot
As noted above, the cost of the “finished lot” for a new home is often a significant portion of the total price for a home, but finished lot costs can vary widely based on the market, the type of community, the cost to develop and more. The NAHB survey reported an average cost of 18.5% of the total sales price for the new home (or almost $90,000 for the approximately $485,000 typical home). This item includes the cost of the land, financing and work to develop and prep the site for building the new house.
The home builder needs to get paid for the risk and hard work involved in building a new home, so of course the builder will have a profit factor included in the total sales price of the home. The NAHB report stated that the average profit that a home builder makes on a typical new home is 9.1%. That’s just under $45,000 based on the $485,128 average home sales price in the survey.
Other Costs for the Builder
There are a variety of other administrative expenses and fees for a home builder that are not directly related to the job site but still are part of the builder’s business of building and selling new homes. For simplicity we have combined several of the builder’s business costs, fees, overhead, sales and other such expenses into this section. These are actual expenses for the builder that are necessary for building and selling a new home:
- Financing costs for the builder (1.7% of total cost for the new home; $8,160 based on NAHB survey’s average home price)
- Overhead and general expenses (4.9% of total cost; $23,683)
- Marketing costs (1.0% of total cost; $4,895)
- Sales commissions (3.7% of total cost; $18,105),
- Site Work costs (3.8% of total cost; $18,323), and
- Other costs (2.2% of total cost; $11,156)
Note that the Site Work cost component for a new home includes all architectural design, engineering, building permits, impact fees, water and sewer inspection fees and other related expenses. If your location has higher than average costs related to government-mandated permits and fees, this is where those costs directly increase the price of a new home.
Details of House Construction Cost Breakdown
The actual “Construction Cost” of the home makes up 61.1% of the total sales price. In the NAHB report that amounts to $296,652 of the $485,128 total sales price. The following discussion details each component of the home construction process that makes up this Construction Cost sum.
The foundation work for a home can vary depending on the home’s design, site conditions, soil and other factors. This category includes activities like excavation and backfill related to the foundation, foundation masonry, concrete, retaining walls and other related work. According to the NAHB survey, foundations make up 7.2% of the total price of a new home (11.8% of the construction cost) at about $35,000.
Framing is one of the biggest home construction expenses at 10.6% of the total sales price (17.4% of the construction cost). And while the foundation is an incredibly important part of the home building process, framing is when you really start to see visible vertical progress. The framing component includes wall and roof framing, trusses, sheathing and other framing related items, and on average totals up to $51,589 of the cost of the average home in the survey.
Major Systems Rough-Ins
While you ultimately won’t see all the major system components behind the walls, floors and ceilings of homes, you’ll sure appreciate the comfort and functionality that these systems provide. Plumbing, electrical and HVAC rough-ins make up most of this category and add up to 9.0% of the total sales price of a new home (14.7% of the construction cost), or a total of about $43,700 for the new home.
After framing the exterior finishes like walls, roofing, windows and doors can be installed. Exterior finishes make up 8.6% of the total sales price for the new home (14.1% of the construction cost). In the NAHB’s survey, the average new home’s exterior finishes totaled up to $41,690.
At more than $75,000, the new home’s interior finishes make up biggest category out of all of the construction costs. Interior finishes broadly include items like insulation, drywall, painting, flooring, interior trim/doors/mirrors, lighting, plumbing fixtures, fireplaces, cabinets, countertops and appliances. This interior finish category makes up 15.5% of the total price of the new home (25.4% of the construction cost).
And to wrap everything up, there are the “final steps”. This work includes landscaping, decks, patios, porches, driveways and clean up. Of course, these items can vary widely too depending on the home, but at a total of $20,116 in the NAHB survey they make up about 4.2% of the total sales price for the average home (6.8% of the construction cost).
Overwhelmed by the cost to build a new home?
Wow! That was a lot of information and numbers. While all these details about the cost to build a house can be overwhelming together, we suggest you don’t look at them that way. Just focus on the areas where you need to put some extra thought when planning and budgeting for your new home.
When doing this type of analysis, your cost breakdown will be higher or lower compared to the average in certain categories. For example, you may want to dig deeper into your new home’s interior finishes budget. Compare and see how much your interior finishes plans align with the average home, and perhaps that can help you either make some informed adjustments or provide affirmation about those extras you were considering adding.
At the very least, this information should give you additional insight about the process and cost to build a new house, and hopefully will provide you some peace of mind about your new home plans and budget.
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