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The “Price Per Square Foot” Dilemma

Let’s Get Some Things Straight About Price Per Square Foot…

Recently an article was published in Builder Magazine that struck some chords.  The article discussing the price per square foot mystery is a fantastic read helping negate the stigma behind builders struggling to come up a “good” answer.  We love that the National Association of Home Builders backs all sellers (not just builders) when they say, “it’s just not that simple.”

Check out the article here: “Defining the Cost” as it will be referenced throughout this blog.

“How to tell buyers exactly how much their homes will cost per square foot – or, even more maddeningly, why they’re worth that much – is an elusive holy grail for virtually every builder in North America” – Robin Griggs Lawrence

None of it is more frustrating than trying to calculate a price per square foot without knowing what your customer is looking for.  At that point we are stuck asking ourselves how honest that we want to be.  You will find us leading with “we can build a <insert square footage> home in this community for <insert dollar amount>.”  But without a discussion first, we are literally guessing at ALL aspects of what you want in your home… how could we ever get it right?  We don’t want to lie, but when people demand an answer, there is no good way to handle the question.

Arizona builder, Andy Stauffer says, “Well, that depends, what do you mean by square foot?”  He also says, “In residential construction there is simply no agreed-upon standard for what constitutes a square foot.”

And above that, Lawrence says, “Buyers pay for a lot of new-home features that have nothing to do with square footage:  a good school district, a nice neighborhood, a view, a floor plan, a feeling, a lifestyle.”

He’s touched on a huge dilemma… What does price per square foot even mean?  The article will touch more on obstacles such as garage space, patio or deck space, etc.  He doesn’t even dive into differences in amenities such as manufacturers of cabinets, type of counter tops, amount of options, type of flooring, etc.  And the list goes on because literally everything that you have in your home can be made by several (or hundreds) of different manufacturers!  There can be different amounts of bathrooms, number of cabinet and square footage of countertops, which can greatly impact price.

Even if you have homes of the same size, in the same neighborhood with the same number of garage spaces and the same size deck, you are still left trying to compare things that could be VERY different.

The problem is that price per square foot on comparable homes still means absolutely nothing without an explanation of inclusions and materials.

Think about it… when you are shopping for a car you don’t ask “how much per seat?” because you know that there are many factors in purchasing a car:  overall condition, gas mileage, finishes, size, durability, safety features, etc.  As you know, some of the most expensive cars have only two seats because of what is under the hood!  So, assessing price per seat would be a very close-minded way to purchase a car.  Instead, buyers ask “what am I getting for my dollar?”  They determine what is most important to them, assess the features of the car and compare ALL factors to determine which features add the most value to their driving experience… NOT by choosing the vehicle with the cheapest price per seat ratio.  (Well, ok, some do if price is the most important thing, but you get the point.)

So, why, when purchasing a home – the biggest purchase of one’s life – do we resort to the most basic way to compare?  …and then expect to get the best quality and have a great experience?

Throwing numbers at a customer just so that they walk away with quantifiable data does not help the buyer make the best decision for their family.  Many things in the price per square foot equation are not quantifiable, which is what makes giving a buyer “the number” seem like an absolute joke to the seller.

Unfortunately, the price per square foot question is a popular one in the realty world.  You will find that it is asked about when comparing new and used homes.  You will find that it is asked about when comparing builders – tract, custom and everything in between!

Because the number means nothing without explanation, it becomes even more frustrating when buyers don’t want your explanation. That’s what brochures are for, right??  Of course, and we give some details in the brochures.

…But the lists don’t always get read.

…If they do, the buyer doesn’t always know what half of the terms really mean.

…And even if they understand the terms, they don’t fully understand the differences between what competing builders are offering.

Here’s an example:  One of our series offers level 3 Brakur Cabinets.  The builder down the street offers level 2 Brakur Cabiners.  Level 3 has eight door styles to choose from.  Level 2 has one.  You decide you want a level 3 cabinet during selections.  Our price gap starts closing from your initial thought.  What you wanted didn’t cost anything extra during selections with us, but with them you had to add more cost after the contract.  Therefore, the cabinets are most likely very similar in price, you just realized the full cost at different times.

There are many different cost factors that are hard to weigh.  Does the builder offer box or custom cabinets and what does that even mean?  What is the structure and how durable are the cabinets?  What do the levels mean?  What style(s) is(are) included?  Is hardware included and if so, how many options and colors are in the package?  What stain or paint color choices do you get?  Is there crown and what size? What material are the cabinets made from?  What if the standard package doesn’t offer what I want… can I upgrade to what I’m looking for at this company?  NOT ONE of these questions is quantifiable.  However, all those things make a difference in the aesthetic, durability and price.

Once you’re done with those evaluations, you must then evaluate if the homes have the same amount of cabinets (even if the rooms are the same size).  Ughhhh… this is so very tedious!

Let me remind you… cabinets are just one of the many items on the “short list” version of our amenity list that need comparing.  Almost every single feature in the home can be scrutinized in this manner – down to house wrap and how the builder caulks!

Our “short”, one-page amenities list that we hand out has 90 items on it that are notable when purchasing a new home.  We’ve limited the list to one page because let’s face it, most of the time it doesn’t get read until there is a meeting with a salesperson.  So, if we put model numbers and full explanations on that handout, there would be eight pages of details to review.  We can barely get customers to read the short list, so you better believe that the long list would never get touched.  Certainly, people aren’t going to start looking up model numbers on their own to compare and contrast with our competitors.

That is precisely why that very first “sit” / appointment is so crucial.  Walking through the amenity list with your salesperson (who can explain what you’re getting in finer detail), looking at photos and getting a better understanding of what your new home looks like is SO important in determining if you are getting a “good deal”.  You’ll also feel more comfortable knowing that you have been educated about the product, rather than guessing if things are comparable.

Once a customer asked if he could see a sample of trim that wasn’t attached to the model.  We went to the selection room and he started pushing on the sample.  After two or three pushes I asked what he was doing.  He told me that the trim in his last home was so cheap that if you pushed on it you could leave a thumbprint in it!  Baffling.  Partly by the fact that you could put a thumbprint in any trim.  Partly by the fact that he thought we might be putting that cheap of a product in our homes!  We are, after all, a “high quality”, custom builder.  But a lot of people don’t know the difference.  They don’t realize what they are paying for and why our product costs more than other builders.

Many people don’t even ask those types of questions simply because they don’t know to or assume “it’s all the same”.  They buy cheap because they got an uneducated “good deal” and end up disappointed because they didn’t care about quality or expertise.  When things start breaking or deteriorate after just a short period of time they get frustrated.  It’s too late after you’ve closed and moved in though.

You can argue that you have a warranty to cover those things.  However, the warranty is only as good as the product.  If you have a cabinet door that breaks after 6 months and it gets replaced with the same product, guess how long until the new one breaks?  Plus, some warranties only cover parts, so you will be required to pay for installation once the new part shows up.  It is critical to understand that builders who are cheap are typically cheap for a reason.

How do you adjust price per square foot based on how the warranty is handled?

In fact, how do you adjust price per square foot based on overall service?  Selection process?  Flexibility?  A smooth or difficult process?  Or any of the other factors that go into building a new home?

The reality is that you can’t fiscally adjust price per square foot for those things… they are unquantifiable data that WILL absolutely make or break your building experience!

While price is certainly a factor that you should consider during your new home purchase, it should not be your “end-all” decision maker.  It is so important to compare non-quantifiable facts, such as community, school district, home layout, exterior features, and home amenities.  Above that, you need to consider your builder’s expertise, reputation, flexibility, quality, etc.  Your selection should hinge a bit on who makes you feel comfortable and you have found to be trustworthy.  Building a home is going to require, at minimum, seven months.  Who do you want to spend that time with?  Beyond that, who will be around to warranty your new home?  Building is a field where “you will get what you pay for” in all aspects of your experience.

So while price per square foot can be a helpful tool, it only works when comparing identical products with identical layouts, features, warranties, etc.  There is no such thing.  That means you will have to base your decision on some unquantifiable data and decide what factors – other than price – are important to you.