Why Cost Per SQFT is Wrong

How much does it cost to buy a bag of groceries? What SQFT are we talking about? Finished? Conditioned? Under roof? The games that can be played with SQFT numbers to sell homes of convince clients that builders are cheap or expensive are ridiculous. Cost per SQFT is the wrong metric, in this video Jake explains why.
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Aarow Building is a custom home building firm in Kansas City and the Columbia Missouri market celebrating more than 40 years in business building the most durable, efficient, and beautiful homes around.
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[luckyfingers]

Price gouging is never a good practice and I applaud that other builder who stayed true to morality.

[spenceralridge]

Jake - I fully agree. I am in the middle of the design phase of our vacation/future home in the NC mountains. We are trying to end up with a thermal bridge-free, airtight, properly ventilated enclosure. One of the keys, from my perspective, to making this structure both perform and be cost-effective is to simply the footprint and roof profile. You and Matt talked about this a bit in your video about vented vs sealed attics. In my case, there will be a walkout basement with a large mechanical room and floor trusses for MEP. My entire attic will be cold and vented. The footprint is a rectangle with two gable ends and two perpendicular gables to define the front and rear porches - meaning I can truss the roof simply and I don’t have to air seal a complex roofline. Stewart Hicks is an architecture professor in Chicago with a very interesting YouTube channel and he recently did a video on how roof trusses contributed to the proliferation of McMansions. I want to go the opposite direction and use roof trusses as a cost savings in a more simple design. Just preference I suppose. I really enjoy your videos so keep ‘em coming.

[patrickkenny]

Jake, I get your point, but I have to disagree on the approach. The reason a perspective client wants that number is because they can start to budget before the design is finished. They aren't at a stage where they can follow a detailed cost breakdown. (As an engineer) I have had to help people budget for a project long before they have a full scope of work; the purpose of the budget is to help them define that scope to avoid trying to "value engineer" the project late in the game. Of course the numbers had more than a $/SF of building area, but the level of detail had to be limited to what they could grasp.

Maybe a better way is to talk in terms of base / standard / premium / luxury values, and major costs that add to the base $/SF number. You can even have those breakdown for the components-- like kitchen, master bath, secondary baths, linear feet of windows, line item budgets for lighting, site work, etc.

Really the $/SF numbers are more a designer-level tool than a bidding type of number, but being able to communicate that cost to talk about a specific project and standard of construction is quite helpful. I'd much rather get a 100-line spreadsheet from a builder to work through a budget, but nobody is willing to share that... and most people don't want to work with it either.

[dlg]

I hear you Jake, but from the client's perspective, knowing that I have a reliable estimate going into the project is of paramount concern. How do we get to a reliable budget/estimate before breaking ground, so that we don't have endless price increases during construction? The thing that terrifies most custom home clients is cost overruns that seem to come out of thin air well into construction. Of course, I want my builder to earn a fair margin, but I also don't want to deal with unexpected cost overruns. My feeling is that the builder (and architect) should steer the client thru a detailed materials selection process, before construction begins, explaining the cost consequences of each choice along the way, to insure that both parties go into the build phase knowing exactly what to expect. No one like surprises in this situation.

[chaseweeks]

After 14 years in the military, I've learned that one should steer well clear of the lowest bidder. The bidder that can do it right the first time is the lowest bidder. Anyone lower than that will have to do it twice (at least).

[Crusader]

I remember one client had 25 foot ceilings in the entire main living area (living, dining, kitchen) with floor to ceiling windows. Of course, building this space will be far more expensive than the same square footage that is few sheetrocked rooms with 8 ft ceilings. I joked to the builder that he should quote cubic feet rather than square feet.

[danielstover]

Agreed with everything you said. It's all true and honest. However, I think we can help customers get started roughing out a budget with a good, better and best cost per square foot rough estimate. Example: A very basic modest home could possibly be built for $150.00 per square foot. A better home might be in the $200.00 range and top tier best homes can easily double those numbers. That politely answers their question and opens the door for good communication back and forth. We must remember that they are often trying to get a grip on something that they actually know very little about. Great video and thanks for sharing... 😁👍

[vespaman]

5:31 i understand from an economics perspective what you're saying, but economics is not a real science or a law of nature it is a man made system. If the builder feels it's wrong to demand more because that stops people of more modest income from having access to those kinds of services, then i applaud that. So many things have become entirely inaccessible because of "supply and demand" pressuring prices upwards. People get left out with that model and thats not exactly a good thing. Especially in regards to someone wanting a home. If it was just the way things were his prices would magically increase all on thier own. Someone had a similar conversation with realtors and home owners about pricing thier himes for sale and look where that got us. I think he made a good choice if he is able to feed himself and his family. Thats not race to the bottom or poor leadership.

[BirchwoodBill]

Love the video. One why would I have the contractor pick the finishing details? Does the contractor pick Warmboard or radiant heat? Are we building to 0.32 ACH50 or 1.0 ACH50? Do I like headaches from a build up of CO2 or do I want an ERV? Pick a contractor who builds the house to your values-that is a custom home

[johnakagi]

I heard “if you are in high demand you should raise your prices” and then “if you want nice things it cost more money.” Those two things do not mix.
The thing that is important to me when it comes to home building is quality. For that I expect to pay more. There is such a thing as a fair price for the craftsmanship, not get as much as you can for as long as you can. That is really close to just plan being greedy. If your homes are quality built and adds value to the home owner, for a fair price will pay many dividends.

[toomanymarys]

You need to give a typical range, though.

[samuelfeguer]

It's easy to complain about something without offering a solution. Is the only solution is to go through an entire proposal to get a price? That speaks nothing to the quality of the work. There's a builder locally whose finished home prices are 20% more than the closest competitor, but when I tour his homes it's almost impossible to find mistakes in the finished product whereas the other builders have what I would say are glaring flaws. Similar competition naturally brings prices down. If what you build isn't comparable then your price shouldn't be comparable either.

[KenNeumeister]

As a consumer, the idea of cost per square foot was not on my mind until the building industry brought it up -- if they hadn't mentioned it, I would have continued thinking in terms of 1) do I have the budget to begin exploring the possibilities, and 2) find a builder/architect whose experience and portfolio matches my goals to see what I can get for the budget I have.

[samuelfeguer]

I would love to see a price based on an algorithm of something measurable and factual like a HERS rating, blower door test, or insulation type/value. This does nothing to price out architectural or finish choices. Should the structure have a separate price than the finishes? At what point does it become a waste of time doing all these calculations?

[CamHart]

Until there's a better replacement for cost / sqft it won't go away. For market forces (supply and demand) to exist there needs to be a way to compare. The easier it is to compare apples to apples the more competitive the industry becomes. More competition equals more efficient. That pressure is a good thing for consumers. Its how capitalism works. Its why capitalism works. I'd discourage making it difficult to compare--thats just introducing ineffeciency.

When cost pet sqft questions come up I would take it as an opportunity to educate the client and ask them to define the sqft number they want (ie, include garages, porches, etc). But also have every one of those numbers available for the client: if you just want AC sqft, my median is $X, if you want underroof its $Y, etc. That teaches them and hopefully enables a still imperfect, but better than nothing, comparison.

Great video, good points. Cost / sqft comparison is full of danger. It exists for a reason though. Its an opportunity for you to show clients how awesome you are--educate them and help them to make a better comparison. My guess is you'll gain their trust (and business more often than not) by doing so.

[jackjmaheriii]

A lot of this goes away when you switch from “free” estimate to paid proposal .

[ArthurDentZaphodBeeb]

Totally agree. It's as dopey as asking how much does a car cost? Well, is it a Chevy or a Ferrari?