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COMPARISONS BEST GAUGE OF BUILDING COSTS

Q: I bought some software to help me calculate the cost of building a house. However, the costs I'm getting back don't seem to be accurate. Is there a simple and foolproof way to go about estimating home building costs? I'm trying to do this before I spend lots of money on blueprints only to discover what I want is out of reach for my budget.

A: The building cost estimator you're using may not be adjusting correctly for your market conditions. You may also have overlooked some settings, and as a result you're comparing apples to onions. So many variables come into play when estimating building and remodeling costs that it's a miracle that any of the software works.

The first challenge you have to consider is that building cost data vary from one city or region to another. Usually settings in software help track the costs in many cities and states, but they can be inaccurate, depending upon the level of fit and finish you're looking to achieve.

To get a pretty close approximation of the current construction costs in your city or town, go on a tour of new homes for sale. Be sure to visit homes that have been recently built. Look in different price ranges so you get an idea of the level of quality of each one. Some will have standard appliances and finishes; others may have premium and top-quality appointments. Take notes.

One thing you have to consider is how long each house has been on the market and if there have been price reductions. The state of the current economy is causing a certain amount of deflation as sales prices are lowered to get houses sold. This means that a house might sell for less than it cost to build. Be careful and ask lots of questions to see if this is the case in your area.

Assuming that the marketplace is fairly stable, I generate new home building costs by trying to calculate the cost to build per square foot. Once you know this number, multiply it by the projected size of your new home to get close to the actual cost.

Start this process by finding one or two homes that are close in size, style and finish level that you desire and are on lots the size you expect to have. It's important that all these things match. Even better, make sure the houses you're looking at are in the same neighborhood, if possible. Prices of the same house can vary depending on the community they're in.

You also need to discount the cost of the lot and any sales commission on homes for sale. I would estimate the sales commission at 6 percent. To determine the cost of the building lot, look for lots for sale that are similar and talk with knowledgeable Realtors. When looking at lots, however, don't forget to account for utility connections. New houses you tour may be connected to city sewer and water, but you may look at lots that need a well and septic system. It can be quite complicated.

Once the sales commission and lot cost have been subtracted from the asking price, calculate the actual square footage of finished living space. Leave out garages and unfinished basements.

I prefer to calculate this using the dimensions of the outline of the exterior walls. Don't fall into the trap of using room sizes. Get the overall square footage. Divide this square footage into the adjusted cost of the home to arrive at the cost-per-square-foot of that house.

This method of determining cost estimates is not foolproof, but it will get you close. The key is to make sure the houses you're using as your benchmark match what you want as closely as possible. If not, you can easily be off by a factor of 25 to 40 percent!

If you're planning a custom home, you need to add in the cost of plans. They might easily run 5 to 6 percent of the cost of the home. You can get plan estimates from architects who draw custom homes.

Also talk to custom home builders to get a range of building costs per square foot. Be sure to talk to several builders and go look at recent houses they have built to see if you're looking at houses that match what you want.

All of Tim Carter's past columns and videos are available at AsktheBuilder.com.

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