Easily Estimate Your Cost to Build
Summary
TLDRMichael from Open Book Build shares a practical method for estimating the cost of building a new home as an owner builder. He advises finding a single builder community with similar homes for sale, comparing listing and closing prices, and using these to estimate the cost per square foot. The method accounts for lot cost, builder markup, and material costs, offering a preliminary guide for potential home builders to plan their investment wisely.
Takeaways
- 🏠 The video discusses a method to estimate the cost of building a new home as an owner builder.
- 🔍 It suggests finding a local new home community with similar homes for sale to use as a benchmark.
- 🏡 The community should be owned by a single builder selling homes and lots as a package.
- 💻 The process involves using realtor.com to find comparable new construction homes and recently sold ones.
- 📝 It's important to note the sales price and square footage of homes that closely match what you want to build.
- 📈 Comparing listing and closing prices can reveal cost differences due to upgrades or market changes.
- 💰 The script uses a 20% rule of thumb for lot cost and a 30% markup for the builder's overall cost.
- ➗ By dividing the estimated labor and material cost by the square footage, a cost per square foot is calculated.
- 📈 This cost per square foot can then be multiplied by the square footage of your dream home to estimate your build cost.
- 💡 The video highlights ways owner builders can save money, such as by finding closeouts on products or using personal connections.
- ⏰ Being an owner builder can be time-consuming, but it allows for savings on overhead costs and the ability to use personal labor.
- 📊 The method is a rough estimate with many assumptions and should be used for initial planning before investing in land or house plans.
Q & A
What is the main purpose of the video by Michael from Open Book Build?
-The main purpose of the video is to share a quick method to estimate the rough cost of building a new home as an owner builder, before investing too much money and effort into the project.
Why is it important to find a local new home community with similar homes for sale?
-It is important because the method relies on a rule of thumb for builder markup and lot cost as a percentage of the sales price, which requires consistency in the community, specifically those owned by a single builder selling homes and lots as a package.
How does one select the homes for sale to use as data in this cost estimation method?
-One should select homes that closely fit what they are looking to build, with similar foundation types, design features, and other specifications, and ensure they are in the same community discussed.
Why is it recommended to compare the listing price with the actual closing price of a similar new home?
-Comparing these prices helps to understand the potential cost differences due to upgrades or changes made by buyers, which can affect the final price of the house.
What does the video suggest using for the cost estimate, the listing price or the closing price, and why?
-The video suggests using the higher of the two numbers for the estimate, as it accounts for potential upgrades made by buyers, which can increase the final cost.
How does the video calculate the lot cost based on the sales price?
-The video suggests that the lot cost for the type of builder in question is approximately 20% of the final sales price.
What is the estimated builder markup percentage used in the video for this type of builder?
-The estimated builder markup percentage used in the video is roughly 30%.
How does the video calculate the labor and material cost to build the home?
-The video subtracts the lot cost from the builder's overall cost to arrive at the labor and material cost to build the home.
What is the significance of calculating the cost per square foot for building a similar new home?
-Calculating the cost per square foot provides a rough estimate that can be used to determine the cost of building a similar home based on its square footage.
What are some of the advantages owner builders have over traditional builders according to the video?
-Owner builders can save on costs by looking for closeout products, using their own physical labor, utilizing connections in the business for discounts, and avoiding the overhead costs that traditional builders have, such as marketing, advertising, and sales commissions.
How does the video address the concern that owner builders may not achieve the same cost as traditional builders?
-The video acknowledges the concern but points out that owner builders have unique opportunities to save on costs, such as through closeout products, personal labor, business connections, and the absence of certain overhead costs.
Outlines
🏗️ Estimating Home Building Costs
Michael from Open Book Build introduces a method for owner-builders to estimate the cost of building a new home in their local area. The method involves finding a local community with similar homes for sale, selecting a single builder community for consistency, and using realtor.com to find comparable homes. The process includes comparing listing and closing prices to account for upgrades and market changes. Michael uses an example to demonstrate how to calculate the cost, factoring in lot cost and builder markup to arrive at a rough estimate of labor and material costs.
💰 Saving on Building Materials and Overhead
The second paragraph discusses ways owner-builders can save on costs, such as purchasing closeout products like granite or quartz countertops and selecting light fixtures at a discount. Michael also mentions the benefits of using personal connections in the industry for potential savings. He acknowledges the time-consuming nature of being an owner-builder but highlights the potential for significant savings, especially when managing the project and performing some of the labor oneself. The paragraph concludes by contrasting the overhead costs of builders, such as sales commissions and marketing expenses, with the savings opportunities available to owner-builders.
Mindmap
Keywords
💡Owner Builder
💡Rough Cost
💡Rule of Thumb
💡Builder Markup
💡Lot Cost
💡Sales Price
💡New Construction
💡Square Footage
💡Closeouts
💡Overhead Costs
💡Physical Labor
Highlights
A quick method for estimating the cost to build a new home as an owner builder is introduced.
The method provides a rule of thumb for initial cost estimation before significant investment.
Identifying a local new home community with similar homes for sale is crucial for cost estimation.
The community should be owned by a single builder selling homes and lots as a package.
Using realtor.com to find actual homes for sale that closely match the intended build.
Selecting properties with similar foundation types and design features.
Recording the sales price and square footage of the selected home.
Comparing listing and closing prices to understand potential upgrades and market conditions.
Using the higher of the two prices for a more accurate cost estimate.
Calculating the lot cost as approximately 20% of the final sales price.
Estimating the builder's overall cost with a 30% markup.
Subtracting lot cost to determine labor and material cost for the home.
Dividing the labor and material cost by square footage for cost per square foot.
Multiplying the cost per square foot by the dream house plan's square footage for a rough build cost.
Adding the lot price to the build cost for a total estimated investment cost.
Owner builders can save by finding closeouts on products like countertops and light fixtures.
Utilizing personal connections in the industry for potential savings.
Considering the time-consuming nature of being an owner builder and managing the job site.
Acknowledging the savings from doing physical labor and managing overhead costs.
Comparing the advantages and savings of owner builders versus traditional builders.
Recommending the use of this method for initial planning before investing in land or house plans.
Transcripts
hi guys michael with open book build
here so today i want to share with you a
quick way to determine the rough cost to
build a new home as an owner builder in
your local area now this isn't a hard
fast exact cost to build but instead
it's a rule of thumb method for
determining an estimated cost before
putting too much money and effort into
the project you don't want to buy a
house plan or a lot and find out that
you don't have the resources to build a
house
as our owner builder students know the
best way to get accurate costs is to bid
the project out but that takes a lot of
time and effort so this is a quick
method to get an initial idea of your
costs so let's work through an example
to show you how this works so the first
thing you want to do is find a local new
home community that has similar new
homes for sale like the one you want to
build now this community should be owned
by a single builder that's selling the
home and lot together as a finished
product
this is a must as we'll be using a rule
of thumb number for builder markup and
lot cost as a percentage of sales price
so we need to stick with a single
builder community that sells the lot and
house combination in a complete package
next we need to find actual homes for
sale that we can use as our data the
process i'm going to describe here is if
you're using a computer mobile will also
work but the instructions are a little
different with that so let's go to
realtor.com enter your city and state
and go ahead and hit search next go to
property type and select single family
home then go to listing status and
select new construction
now locate the home that best fits what
you're looking to build and is in the
community we just talked about make sure
this home fits your needs as closely as
possible with the foundation type either
basement slab or other one versus
two-story design two versus three-car
garage and so on if this home comes
close to what you are looking to build
write down the sales price and square
footage now hit the back button in the
upper right hand corner of the screen
click on new construction that you had
previously selected and instead select
recently sold scroll down through the
houses that have recently sold and see
if any of them are in the same community
if you find one like the one you just
found that is listed for sale compare
the sold price to the price you just
wrote down is the price higher or lower
why are we comparing the closing price
versus the listing prices of the same
new home in some cases builders offer a
base house that's stripped down and then
you add in the finishes and features
that you want this can add tens of
thousands of dollars to the final price
of the house so by comparing the listing
prices to actual closing prices we can
see how much of a difference there is
and how much people are upgrading i
would tend to use the higher of the two
numbers for this estimate now write down
the dollar amount and square footage of
the higher priced option now in this
case the cost to build is higher on the
new listing versus the close price why
because construction material pricing
especially lumber has gone up like crazy
over the last three to four months and
in a typical scenario where costs aren't
going up so fast i would expect the
closed sales price to be higher because
people add options to the base house
price
so for my example here the recent home
sold that is like the one i want to
build was 551 000 and the listing price
for the same house currently for sale is
563
900. so i'm going with the 563 900 with
a square footage of 1776 square feet
again the higher dollar amount of the
two so we know the lot cost for this
type of builder is approximately twenty
percent of the final sales price so
twenty percent of the five hundred and
sixty three thousand nine hundred would
be a hundred and twelve thousand seven
hundred and eighty and the current
builder markup for this type of builder
is roughly thirty percent so the
builder's overall cost would be in the
neighborhood of four hundred and thirty
three thousand eight hundred now
subtract off the lot cost of 112 780 and
we're left with the labor material cost
to build this home of three hundred
twenty one thousand twenty dollars
that's our rough cost estimate meaning
if you were to try and build this exact
house on your lot with the same setbacks
and driveway it would cost you roughly
three hundred twenty one thousand
dollars now if we divide this by the
square footage of seventeen seventy six
we get an approximately 181 dollars per
square foot to build a similar new ranch
home with a two-car garage basement and
similar finishes in west lake ohio so
now we can take the square footage of
our dream house plan and multiply it by
our
foot to get our rough cost to build in
west lake ohio then we add in the lot
price and this is the total estimated
cost of our investment again this is an
initial estimate that is making a lot of
assumptions now some of you might be
saying to yourself there's no way an
owner builder can build one house and
achieve the same cost as the builder
i would agree to you to some extent but
i want you to consider just a few ideas
first the owner builder can look for
closeouts on products one example would
be remnant granite or quartz countertops
these take time to select based on the
material available and the size and the
shape of your countertops but they can
save you up to 50 percent or more
another big idea for savings on products
would be light fixtures we selected
closeout or deep sail item light
fixtures for the open book build
prototype home and easily saved forty to
fifty percent builders just don't have
the time to deal with this type of
bargain shopping and if they did they
probably wouldn't pass the savings on to
the customer anyway
also remember that builders typically
have manufacturer agreements that won't
let them choose just any product that
might be on closeout or on sale at the
time
another way owner builders say big is to
utilize any connections they have in the
business most people have a friend that
can help or a relative maybe an
electrician or a carpenter or plumber or
maybe a person who works for a lumber
supplier
these connections can lead to big
savings for the owner builder
being an owner builder is a
time-consuming job there's no doubt
about it you need to manage the job site
on a daily basis pay bills and schedule
trades people and material deliveries
and so on but for those that have the
extra time in addition to managing it to
do some of the physical labor themselves
as well like painting or cleanup there
are some really big savings to be had
the other thing to consider is that
builders have overhead costs that owner
builders just don't have most new home
builder budgets include line items for
marketing and advertising and site
supervision now these can add up to
significant dollar amounts now take for
example the sales function most builders
include a budget for paying real estate
sales people that represent the buyers
now this can be two percent or more of
the sales price then add in the one to
one and a half percent the builder pays
their own sales people and they can be
paying up to three and a half percent
just to sell the house on our sample
house prelissilly discussed this three
and a half percent commission would be
nineteen thousand seven hundred and
thirty six dollars this doesn't even
touch the cost for marketing with signs
online advertising print ads and so on
so yes builders have an advantage when
negotiating with trades people and
suppliers but they don't have the same
ability as the owner builder does to
save on close out products or use their
own physical labor that's free or work
with friends in the business
and overhead costs can really add up for
the builders so if you're thinking about
building your own home you may want to
start by using this video with our rule
of thumb cost estimating to start your
initial planning before you invest in
land or in house plans
that's it for today guys i'm michael
luckadu with open book build
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