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6 Tips for Staying Under Budget when Estimating Home Construction Costs
With the market in turmoil, construction costs for new homes are somewhat unpredictable unless you understand the factors that go into estimating those costs. Changing land prices, material price fluctuations, contractor labor costs: all of these factors play a part in the overall cost of a new home. In this article, we’ll discuss some of the current trends in new home construction costs, what’s happening in the industry to impact these costs, and a few tips to help you keep your new home construction cost estimates on track during the process. Let’s get started!
2020 Construction Costs to Build a New Home
What does it cost to build a home in today’s market? Though there will be a range of regional differences, most builders will have direct expenses of around $85 per square foot for a residence, which when combined with overhead and profits will increase to $100 to $155 per square foot, according to the National Association of Home Builders. When your customers are considering a custom-designed home, that cost will probably increase, mainly because the builder is unable to maximize their own savings through bulk purchases and cookie-cutter building processes found in subdivision construction.
Generally speaking, these costs are lowest in the South at $100 per square foot and highest in New England and the Mid-Atlantic regions at $155 per square foot, with the Midwest being second-lowest at $109 per square foot and the West being second-highest at $131 per square foot. In most situations, building out instead of up, adding bedrooms, adding a basement, or bumping up to luxury finishes will raise the overall cost of the home significantly.
Engineering and Construction Costs are Falling
However, the COVID-19 pandemic has caused some serious shakeups in terms of engineering and construction costs. Though construction is considered an essential service, there has been a drop in construction costs starting in April of 2020, which has caused the cost of engineering and construction to go down for the first time since 2016, though some sources are listing 2010 as the last time that the costs of construction really fell, surrounding the housing bubble break and last recession. Not only was there a decline, but it was also a relatively sharp one, with declines in subcontractor, materials, and equipment costs. This is good news for contractors who were facing serious problems in finding sufficient labor to get jobs done.
But what about the time that has passed since April? The Turner Building Cost Index showed additional construction cost decreases for the second quarter of 2020 as a whole, which measured costs up until the end of June. However, as homeowners who are stuck at home during the pandemic take on more DIY projects, the cost of materials has begun to rise again by 0.8% in May and by 2.2% in June. Part of the increase has happened due to continued chaos in the global supply chain caused by COVID-19, though additional costs of doing business may also come into play as supply houses are paying into their digital infrastructure for employees to work from home and for additional masks, hand sanitizer and cleaning costs for those that are keeping their doors open.
Tips for Estimating New Home Construction Costs
When you’re working with eager new customers, there are a number of directions you can use to help ensure that they’re getting what they want while staying within budget.
- Pin down a specific floor plan. Your customers may come in saying they just want something general, but having them commit to a specific floor plan helps protect everyone’s interests in the process.
- Provide your customers with an estimated cost per square foot. This allows them to understand how much it will cost to get the home done in general terms. They can then begin to decide where to economize and where to splurge in terms of interior and exterior finishes. Check out our Painting Estimate Guide to help you understand how to provide an accurate and detailed interior and exterior paint estimate under budget
- Educate your customers on what style, quality, and features mean. If they have a better idea of what they actually want to focus on, it can help you determine how to prioritize their budget to make them happy with the finished product.
- Make sure your customers are leaving room in the budget for unexpected costs. This can include site prep work that is above and beyond what is expected, fees for permits, and additional costs for construction during particular points of the year, such as heating blankets for concrete in winter.
- Try to keep your customers and your company proactive to avoid cost overruns. Use a detailed contract with your customers, purchase materials before costs increase, stay on top of potential late fees for construction delays, and similar approaches to keep costs as low as possible.
- Use quality construction estimating services to help ensure you’re catching all of the expenses and saving time in the process. Estimating services help drastically speed up your estimating process, in some cases by up to 15 times faster. This allows you to bid more jobs while spending more time in the field doing what you do best – building homes. It also increases your profit margin because you’re spending more time in the field and less time estimating each job.
By having a solid understanding of current construction costs, trends in the market, and how to estimate new home construction costs effectively, you’ll be able to come up with a solid estimate of construction costs for your project without a lot of extra work or worry. However, the easiest way to ensure that your bids are accurate is by using comprehensive estimating software that helps you avoid missing any area of the plans and keep up with any changes in material costs. 1build is a construction estimating service that is revolutionizing construction estimating by combining the experience of human estimators with the intelligence of powerful AI, enabling faster, more accurate estimates. Why not take a few minutes to see what 1build has to offer or request an estimate to see just how cost-effective our services are for your construction business?