Cost per Square Foot in Austin

Cost per square foot is a common measurement in today’s home valuation, and Austin is no different.  It is used by Realtors, Banks, Appraisers, and others, but experienced professionals do not use that valuation alone and neither should you.  In this article, we will look into the fallacy of using cost per square foot as the primary valuation of a home.  It is my opinion that cost per square foot (s.f.) is one of the least effective tools for measuring a home’s value in the custom home market.

At Jenkins, our typical budget for a single home is over 600 line items.  The factors that affect each line item can be varied and numerous.

Take roofing material as an example.  Is a clay tile roof imported from Italy the same cost as a 20 year shingle roof, or even a concrete tile roof?  It is not.  The import cost alone is much more.  Not to mention the necessary framing changes to accommodate the weight of the tile, the numerous flashing and underlayment options, etc.  Which do you prefer, two layers of 30lb. felt or ice and water shield?  Maybe you need a combination of the two?  A lot to consider?  Yes, it is.

To summarize, just within this one line item – roofing materials – there can be a variety of alternatives, each of which has a ripple affect on the rest of the budget.

Allow me to illustrate further.  Here is an over-simplified example.  Let’s say these are the costs for two different homes – House #1 and House #2.  Both homes are 10′ x 10′ or 100 square feet (SF).

House #1
Item	Quantity	UOM	$/UOM	Total $
Foundation	100	SF	20.00	2,000.00
Walls & Roof	100	SF	30.00	3,000.00
Windows	0	EA	500.00	0.00
Doors	1	EA	800.00	800.00
Baths	1	EA	5,000.00	5,000.00
Kitchen	1	EA	10,000	10,000
Porches	0	SF	40.00	0.00
Outdoor Grill	0	EA	100.00	0.00
Garage	0	SF	45.00	0.00
TOTAL	100	SF	208.00	20,800

House #2
Item	Quantity	UOM	$/UOM	Total $
Foundation	100	SF	20.00	2,000.00
Walls & Roof	100	SF	30.00	3,000.00
Windows	11	EA	500.00	5,500.00
Doors	1	EA	800.00	800.00
Baths	1.5	EA	5,000.00	7,500.00
Kitchen	1	EA	15,000	15,000
Porches	25	SF	40.00	1,000.00
Outdoor Grill	1	EA	100.00	100.00
Garage	50	SF	45.00	2,2500.00
TOTAL	100	SF	348.00	37,150

Now, before you decide which house you are going to purchase, look carefully at the difference between these two homes.  House #2 is a whopping  78% more for the exact same 100 square foot!  What a rip-off, right?

Well, House #1 also has no windows.  Meanwhile, House #2 has windows on all sides, a nice covered porch, better appliances, a garage, and an extra 1/2 bath.  Still want the first house?

My point is that if you multiply those cost differences by 600 different line items, pretty soon the two houses start to look really different even though they are the exact same size.

Let’s take the analysis one step further and look at how the dollar per square foot is calculated. The porch and garage do have a real cost, and it is $3,250. However, the spaces like the porch and garage are not included in the calculation for dollar per square foot because the calculation generally only includes the air-conditioned spaces. So, in real terms, the garage and porch alone added over 15% to the total cost.

Now let’s look at what happens when you reduce the overall size of the home. When we reduce the home to 80 square feet, the cost per square foot goes up by 19% on Home #1 and 28% on Home #2. Why? Because certain fixed costs can’t be eliminated. So reducing the size of the home just increases the dollar per square foot cost. So another factor in the equation is the overall size of the home.

In case you still aren’t convinced, consider the way we price other items we purchase such as cars and trucks. .
Have you ever heard of anyone calling a car dealer to ask him for the cost per seat of a car?  Probably not.  And if you did, wouldn’t it make sense for the 5-seat Toyota Camry to cost at least twice as much as a Corvette?  After all, the Camry has over double the number of seats.

Then again, if that were the measure of value, we would all be driving minivans, wouldn’t we?  Or… would we?