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How to Create Your Cost Estimate for Home Construction

The cost estimate for home construction is the core of your financial plan. Sometimes you may also hear the term "take off," which also means cost estimate.

How to Create Your Cost Estimate for Home Construction

The cost estimate for home construction is the core of your financial plan. Sometimes you may also hear the term "take off," which also means cost estimate. The cost estimate allows you to define your cost control. If purchasing a home plan, they might provide a cost estimate for you.

If you plan on getting custom plans, then we'll show you how to get your cost estimate done for home construction.

When you are creating a budget, you should have a rough cost estimate. But now, we can crunch in the exact numbers to help guide you through your home building project.

It might be shocking to you, but many people don't even take the time to create precise cost estimates. Technically, you could show up to the bank with your home plans and ask how much they will lend you to build a house. And then cross your fingers, hoping it works out okay.

There is the possibility that you had a load of cash and didn't need to worry about a construction loan. Maybe you can show your supplier the plans and tell them what you need, right? Wrong!

There is a better way, and we will show you!

To squeeze out the most profits or savings, you must take control. The only way to be in control is to know precisely how much the house costs before trying to build it. ‍

What Affects the Cost

You might have heard that there is some magical formula using the costs per square foot to get the cost estimates. Sadly, that's not true.

Each home is different. When coming up with your cost estimate for your home construction, you will find out that there are several key factors:

  1. Specifications and Design - the number of things, kind of things and quality of items that are included in your home
  2. Negotiation - the prices that you can negotiate for the materials, labor during construction
  3. Length of Time - how long will it take to build the house? This will affect the interest on the construction loan
  4. Control Waste and Theft - The better you can organize the accurate number of materials, then you can prevent waste and theft from happening

What is the Cost versus Worth

Your banker can give you a rough estimate of what your home is worth. This, however, is not the cost.

For example, you and your builder will build the same homes. The home requires roughly 14 rolls of wallpaper inside of the dining room. The builder in this scenario pays $10 per roll, which is the retail price.

His total cost is $140 (10x14=$140). But you do a little bit of price shopping and find that you can get the same wallpaper discounted at $3 with another supplier. The total cost for you would be $42 (3x14=$42).

This means you pay 70% less than the builder!

Here's the lesson. If you are a savvy shopper and willing to shop around as well as look for sweet deals, you can find sizable deals to lower your home's cost. And this does not affect the work of your home. ‍

Group Up Costs

To easily visualize all of the costs for construction, you can group them up like this.

Soft Costs
  • Permits
  • Design
  • Inspections
  • Construction Management
Hard Costs
  • Utilities
  • Labor
  • Materials
Lot Costs
  • Closing Costs
  • Purchase Price
Financing Costs
  • Construction Loan
  • Lot
  • Permanent Financing
If you're building the home for sale, you also need to include sales costs.
Sales Costs
  • Sales commissions
  • Advertising
  • Closing Costs
Group-Up-Costs
Figuring Out Hard Costs
Getting your hard costs is by far the most time-consuming task. It can take some difficult estimates and planning to find out the number of materials needed. However, you can have this job done for you by subcontractors and suppliers.

It may come with a list of materials alongside your plans for those that purchase a plan service, which saves a lot of time and effort. We did help you by including all of the information you need to get an accurate cost estimate.

There also is a handful of software that can calculate your cost estimate for construction. This will give you total cost control! Many professional home builders use this software to make their lives easier
Getting Started
So how can we get started? To get started in figuring out the costs, you need to figure out the price of all the different categories and add them up. This isn't as complex as it may sound. If you struggle, you can always ask for help from subcontractors and suppliers.

By this point, you already know your lot costs. You already have the financing costs from the lender when they pre-qualify you for the home construction project.

We assume that you're not building for a for-sale home. So that leaves only soft, and hard costs left. We encourage you to start with the labor costs first since many subcontractors furnish their materials.

  • You want to find your subcontractors first.
  • Then you need to get quotes.
  • Then get your suppliers quotes.
  • Then it would be best if you recorded it in an organized fashion.
Now that you've got all of your quotes in hand, you can begin the planning phase. You can now start working on your construction schedule!