Easily Estimate Your Cost to Build

Summary

Michael 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

00:00

🏗️ 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.

05:01

💰 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.

Keywords

💡Owner Builder

An owner builder is an individual who takes on the role of managing the construction of their own home, rather than hiring a professional construction company. In the video, the concept is central as it discusses estimating the cost to build a new home from the perspective of an owner builder, emphasizing the importance of understanding the costs involved before committing to a project.

💡Rough Cost

The term 'rough cost' refers to an approximate estimate of expenses, rather than a precise figure. The video script describes a method to determine the rough cost of building a new home, which is essential for owner builders to gauge the feasibility of their project without investing too much time and money upfront.

💡Rule of Thumb

A 'rule of thumb' is a general guideline or principle based on experience or common practice, rather than a strict mathematical formula. The video uses this concept to provide a simplified method for estimating building costs, which is particularly useful for owner builders who may not have access to detailed financial data.

💡Builder Markup

Builder markup refers to the additional cost that a builder adds to the base price of a home to cover their expenses and profit. In the context of the video, the script mentions using a rule of thumb number for builder markup to estimate the overall cost of a home, including the builder's profit margin.

💡Lot Cost

Lot cost is the expense associated with purchasing or leasing the land on which a home will be built. The video explains that the lot cost is a significant factor in the total cost of building a home and uses a percentage of the sales price to estimate this cost in the absence of specific data.

💡Sales Price

Sales price is the amount for which a property is sold. The video script uses the sales price of a similar home in the same community as a reference point to estimate the cost of building a new home, emphasizing the importance of comparing listing and closing prices to understand market dynamics.

💡New Construction

New construction refers to a property that is being built or has recently been completed. The video instructs viewers to focus on new construction when searching for comparable homes to use as a basis for their cost estimation, as these properties provide the most relevant data for the purpose.

💡Square Footage

Square footage is the total area of a property, measured in square feet. In the video, square footage is used to calculate the cost per square foot of building a home, which is a key metric in the cost estimation process for owner builders.

💡Closeouts

Closeouts refer to products that are being sold off, often at a discount, because they are discontinued, overstocked, or at the end of a season. The video suggests that owner builders can save money by seeking out closeout items, such as granite or quartz countertops, to reduce the overall cost of building.

💡Overhead Costs

Overhead costs are the ongoing expenses of a business, such as rent, utilities, and salaries, that are not directly tied to the production of goods or services. The video points out that owner builders can save on overhead costs, as they do not have to cover expenses like marketing, advertising, and sales commissions, which are typically included in a builder's budget.

💡Physical Labor

Physical labor refers to work that requires physical effort, as opposed to mental or managerial tasks. The video mentions that owner builders can save on costs by doing some of the physical labor themselves, such as painting or cleanup, which can significantly reduce the overall expenses of a building project.

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