What Actually Determines the Price of a Custom Home?

Every now and then, a homeowner will call to ask how much our new homes cost per square foot. The answer depends on a range of variables — some obvious, some less so.

The differences everyone grasps have to do with the house itself. In a custom home, the architectural design and the quality of finishes — windows, trim, countertops, fixtures — are driven by homeowner choices and will be unique to each project. But those aren't the only variables.

There are things beyond the homeowner's control that also have a big impact on price.

Lot Conditions

One major factor is where the home will be built. There can be a huge spread between the costs of two identical homes if lot conditions and local regulations are different enough.

Some lot conditions are easy to see. It costs significantly more to build on a slope than on a flat lot. A home on the side of a hill may require more excavation and a more complicated foundation. A steep slope may also require an engineer's survey — something worth doing before purchasing the lot. The lot may also require fill dirt, retaining walls, or excessive gravel to make the finished home appealing.

You also have to consider what's beneath the ground. Foundation costs in our region depend primarily on whether you're building on clay, rock, or fill dirt, as well as how close the water table is to the surface.

Regulations and Services

Some of the highest lot-related costs come from regulations and services. Permits, for instance. The National Association of Home Builders estimates that the cost of complying with government regulations has risen significantly in recent years, and some jurisdictions require more permits than others.

The same goes for subdivision infrastructure. Some subdivisions have larger lots but higher infrastructure costs, while others have a higher density in an effort to spread costs over more building lots. In less populated areas, you may need a long trench to bring water, sewer, and electric service to the house.

If your lot is in a community governed by a homeowner association, their covenants and architectural guidelines can also impact the final home price — for example, requirements for a certain percentage of stone siding or matching exterior materials for detached structures.

The Bottom Line

You can't get an accurate price before understanding the variables imposed by home design, homeowner selections, lot conditions, utility companies, local governments, and HOAs. If someone gives you a square-foot cost over the phone without taking these into account, treat it with healthy skepticism.

The right approach is to work with a builder early — before you've committed to a lot or a design — so these variables can be identified and priced accurately before your budget is locked.