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Why $/SF derived budgets are
ultimately unreliable
This section will briefly discuss the "Square
Foot Trap: Finished SF vs. Constructed SF" and the reasons why $/SF
budgets are ultimately unreliable as predictors of construction cost for a
SPECIFIC new home building project like yours.
is the number you hear all the time when someone says their house is 2,500
SF or 3,800 SF. It's the number that includes all livable area, from
outside wall to outside wall.
But there is a second number you rarely hear about called Constructed SF which has
a major impact on construction cost. It is Constructed
SF that is one of the biggest factors in skewing $/SF rules of thumb.
Just because the garage and basement and unfinished spaces are not livable, does
not mean they are free to construct. Unfinished and bonus spaces drive
costs with no livable SF benefit. The effects of Constructed vs.
Finished SF is the subject of this section.
As you will see in the 5 examples below, the conversion of Finished and
Constructed spaces skew and make the $/SF metric useless as a predictor of
costs.
But before we get into that, there is
another key variable that makes the $/SF metric unreliable, and that is the…
…Quality level of the home's construction materials.
 You
see in Example 1 [below], the $/SF cost is $103/SF based on a $310,000
construction cost. Now that's assuming basic interior finishes, but what happens
if we went with custom cherry kitchen cabinets, granite counters, hardwood
baseboard, door and window trim, wool carpet, whirlpool tubs, custom showers,
etc. Well, you get the idea.
The home cost would go up, right? Let's assume it goes up to $370,000. The home
cost $/SF is now up from $103/SF to a new number of $123/SF.
Did the Finished SF or Constructed SF increase? No. But the $/SF sure did.
Remember, quality level of the materials has significant impact of cost. And one
person's definition of Standard or Luxury is different than another's, so
categories like that do little to clarify quality level assumptions.
Resi-Cost however, considers all Quality variables at one time, plus
regional cost variations plus Site Work related costs and others you don't
even want to know about.
But let's put quality levels aside for a moment and get back to Finished
vs. Constructed SF since that has a more significant impact on $/SF.
EXAMPLE 1
OK, let's start with a simple 2 story home on a slab; no garage and no
basement. Note here that the amount of Finished SF is 3,000 SF. This is the
number generally used when talking about the size of a home. Please also note
that the Constructed SF is 3,000 SF.
EXAMPLE 2
Now here we see the same house but with the addition of an
unfinished walkout basement. You see the Constructed SF went up by
1,500 SF resulting in an increase to cost. But because the Finished SF stayed
the same (since the walkout basement is unfinished), the $/SF went up
from $103/SF to $111/SF.
EXAMPLE 3
Now in addition to the unfinished walkout basement we construct
a 3 car garage. That increase the Constructed SF from 4,500 SF to 5,364
SF. Have we increased our Finished SF? No. That remains at 3,000 SF. Cost now is
up from the original $103/SF to a new $127/SF.
Now say we built the garage so that it had a floor above for "bonus
space". It's cheap right? Constructed SF now increases again to
6,228 SF from the original 3,000 SF and as before, the Finished SF remains at
3,000 SF. Cost is now up $78,000 to $388,000 from the original $310,000 (with
no additional living SF); and cost per SF is now standing at $129/SF.
EXAMPLE 4
So now the would-be-homebuilder thinks "Since I'm building
the walkout basement anyway, why not finish it out? It's cheap" This
decision increase the Finished SF from 3,000 SF to 4,500 SF and INCREASES
construction cost from the original $310,000 to a new $405,000.
However it DECREASES $/SF from $127/SF to $90/SF.
EXAMPLE 5
In our last example we see the utter failure of $/SF estimating.
Let's say our would-be homebuilder now decides to finish out the bonus space
over the garage since finishing out the basement was such a deal. Our original
Finished SF has now increased from 3,000 SF to a new 5,346 SF, and Constructed
SF went from the original 3,000 SF to a new figure of 6,228 SF.
Overall cost? Well that INCREASED the original $310,000 to $430,000
but REDUCED the $/SF cost from the original $103/SF to $80/SF.
SUMMARY
As can be seen by the above examples, the cost for this house
ranged from $129/SF to $80/SF. That's the reason you always get evasive
ranges and "It Depends" answers from architects and builders. And
that's also why using $/SF for accurate home cost estimating will always be a
myth and will place you squarely in the cost trap, every time.
It is this exact problem that Resi-Cost solves and helps you avoid.
Unless of course you don't mind a range of $49/SF in your estimate. (Yes,
we thought you would.)
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"It's
unwise to pay too much, but is worse to pay too little. When you pay too much,
you lose a little - that is all. When you pay too little, you sometimes lose
everything, because the thing you bought was incapable of doing the thing it was
bought to do. The common law of business balance prohibits paying a little and
getting a lot - it can't be done!
