Ah, the argument of the ages. Not really. It’s pretty well accepted as a projection tool. However, the real question is how accurate is this method? Truthfully, there is a science to it. At the same time, there is a pretty broad range of variables, inherent latitude and more than a pinch of SWAGing. There have been several estimates of how many components are in the “average” house. The number floats somewhere around 3 to 5 thousand. That’s a pretty big number and doesn’t represent necessarily how many “pieces” there are. It’s complicated. So, how can we track average costs per square foot? Very carefully. It’s tedious on a good day. As a designer, we have a unique advantage of working with multiple builders on projects we have originated. We have the ability to see how different builders price the same project in a competitive environment. Everyone receives the same plans so their pricing is based on the exact same criteria. We’ll talk about actual construction costs at another time. For now, we’re looking for a platform that can help you assess if your budget is realistic or not.
Invariably, every client we have asks us to project how their budget will perform in light what they want. Talk about a mine field! Humans are interesting. They remember the LAST thing you said. Regardless of how many cautionary disclaimers you issued before, the last number is the one they hear. People want to hear that they can achieve what they want for the budget they have. Of course they do! Throwing out a number is where you plant the mine. You may step on it later! Unfortunately, if you’ve put out the Bat Signal for builders to come and discuss your project, you’ll get a lot of “estimates” as they walk through. Without a plan in hand what do those numbers mean? In reality, nothing much. If you start discussing a project with multiple builders, the 1st challenge is you. For example, the 1st builder drops by and you lay out your vision. Remember, they’re trying to see what’s in your head. People vary in their ability to express their vision. Some are great at it and some, not so much but, you’ve been preparing for this moment for days, weeks or even years and you lay out this clear concise image. Out of the gate you’re assuming that what you said is what they heard. They will often pitch out a “base budget” then or tell you they need a couple days. Then the next builder comes and you are a little more comfortable and lay it out again perfectly. That is except you forgot to tell the 1st guy about a powder room option you remembered to tell the 2nd builder. It fragments further with the 3rd candidate and so on. Off the top, the vision is not uniform. In fairness, their estimates won’t be either. Does the image in their mind match the one in yours? Once again, this is why a plan is so critical to start the process correctly.
Our planning process is broken into 2 basic components. The concept development phase where we establish exactly what you want in light of what will actually work, and the working (permit) drawing phase where we show exactly how to build it. In the Concept phase we work to extract the vision from your head and get it on paper. It’s a collaborative process but, once we do that, we have a dance. Now we can develop a very accurate model of how it will work and look. Basically, we determine how we will build it and how much it impacts everything around it. Huzzah! From here, we can start determining some basic budget parameters. How do we do that? Funny you should ask.
Remember, we have the advantage of working with a number of builders. Over time, we have come to respect and trust many of these builders through experience. These relationships allow us to track the costs of our designs from start to finish. Generally speaking, we can maintain a reasonable cache of current pricing numbers from actual projects. We also watch ‘wholesale’ material costs on a limited basis. Mostly the big components like lumber, roofing or concrete. From all of these historical statistics, we’ve observed trends. Please keep in mind that we are in the Atlanta Metro market although other markets respond similarly.
The year before the Pandemic, most projects averaged about $138.00 to $155.00 per square foot impacted. We’re speaking of renovation/retrofit projects specifically. These would be projects that involve an addition and some interior modifications. When I say “per square foot impacted”, I mean both new floor area (additions) and areas inside the existing home that are modified for the addition or some other major change. It’s an art to sort them out. New floor area is easy to quantify. Just measure all that has been added. The interior area is more difficult to assess depending on the complexity of the addition or interior work. Lucky for you, figuring this out is a part of what we get paid for. The interesting thing is that we have found that modifying existing floor area is about the same cost as building new floor area. New floor area in an addition is just that, new. Modifying existing floor area is a different animal. There is demolition, temporary bracing, dust control and many other variables impacting cost that aren’t generally a part of new construction. Also, the client often wishes to remain in the war zone while the work proceeds. This impacts the process and work schedule. One would think that the cost of modifying something already there would be cheaper. Our tracking shows they’re about the same in cost.
During the core thrust of the pandemic, costs rocketed through the roof. Lumber for example, shot up about 365%! It has dropped since then to realistic levels. Last year the Fed. predicted that this year wholesale pricing would be at a place as if Covid had never happened. So, why is retail off the charts? Another good question. Basically, because they can. That’s one reason why I ask you to wait on starting a project if you haven’t already. Every time we pay these extreme prices, we’ve shown that we can tolerate a higher threshold.
As late as last October, we were tracking numbers that put a good “builder grade” project at around $178 – $190 per square foot as a base. This is a nice quality project. “Builder grade” is a good thing. It means good quality and within current style trends. Just not extravagant. This past week, we analyzed four recent projects that are in the last stages of construction at this time. They vary from two major additions with significant interior mods to 2 primary suite additions with interior reconfigurations for a commensurate Primary Bath. This was a good mix of scopes under 3 different permitting authorities. At this time, we are cautioning our clients to anticipate $230 – $250 per square foot for the average add-on / reno project. The actual costs are somewhat lower but a budget should ALWAYS err to the high side. Everybody loves subtraction (savings) but nobody likes addition! To sum up the current picture in metro Atlanta, the budget spread has increased about 40%+ in 5 years. We feel pretty safe presenting this basic budgeting tool….for now. Just like the weather, this too will change. With new home sales flat over the last 2 years, reimagining what you own is definitely the best path forward for the foreseeable future. Now, we wait and thereby hope to influence the stabilization of costs. Retails costs of materials need to drop to sustainable levels. Skilled labor costs need to address a living wage to attract new talent to the industry. Many Builders need to realign to a more realistic and sustainable profit model. When these three things happen, we’ll begin to see a predictable landscape for the future of home building. In the interim, we plan.
Until next time….
