When analyzing pricing and quality among builders, there can seem to be vast differences in pricing. So how does that translate into quality differences? Surely something is driving the pricing differences. With literally thousands of different options on a single residential project, it is difficult to explain without a real-world example. In this case study, “How to Compare Pricing among Builders”, we examine a real-world example of two different homes to see the differences. In this example, one home is being offered for considerably less than the other. Although there are many variables behind the walls, this study addresses only what can be seen on the interior and exterior of the home. In the end, this comparison should bring to light the differences in pricing among builders and quoted prices.
How to Compare Pricing among Builders
Builder A advertises that he can build a custom home for $50/sf less than any other builder in town. He claims to get better pricing than other builders. So just to use round numbers, most other builders are quoting, say, a price of $300/sf, and this builder is quoting $250/sf. With a 20% difference in pricing, that sounds very appealing! So what’s the difference? Are the homes truly comparable?
To start, let’s compare a home for sale by Builder A. To make the two homes comparable, the cost of the lot is removed from Builder A’s listing.
We will use a Jenkins Home, Builder B, with similar size and features to compare to Builder A. This begins to illuminate the differences. After all every custom home is, in fact, one-of-a-kind.
Know Thy Numbers
There are many details that make up a home. Compromising on all of those details will cause the custom home to feel like a production or low-cost home. Although most everyone does make some concessions, there are areas where our clients typically will not compromise. The reason the residential building industry has gotten into the habit of quoting really low numbers is because there are so many variables which affect the final pricing. Builders who quote bargain basement pricing know that clients aren’t willing to accept the less expensive alternatives that they will offer them, certainly not in a $1M+ home. So every time a client says, “I’d like to have some covered outdoor living”, that adds to the cost.
Also, there are some out-of-pocket costs that can be left off of the initial quoted price which makes the cost per square foot sound much lower. Things like architect fees, engineering, pool, landscaping, tap fees and permitting fees, can easily add up to $50/sq ft. In fact, the going rate for just the Architect typically ranges from 10% – 16% of the total project cost. So just be aware that you need an apples to apples comparison to really know the numbers.