Construction costs have gone up substantially since the start of COVID-19. Learn about what construction costs you need to take into account when building a new home, followed by five great tips on how to ensure accurate home cost estimation.
With the market in turmoil, the construction costs of new homes have become even more unpredictable. Material price fluctuations, changing land prices, and contractor labor costs are critical factors that go into determining the cost of a new home. Understanding each factor and how it influences the total cost of your new home project can help you reach more reliable cost estimates.
Let’s get started!
Key Components of Cost Estimation
1. Quantity Takeoff
Quantity takeoff is the process of translating information from architectural drawings, structural engineering drawings, plumbing drawings, and electrical blueprints into a list of items whose quantities can be measured.
A construction cost estimation firm does this by determining the actual costs, measuring the required material, and determining the labor needed to complete a project. Quantity takeoff is a critical part of the process as it enables the contractor to find out whether the project is profitable.
2. Labor Hours and Rates
The next part of determining costs involves estimating the labor hours required and the rates that they will be paid for this specific project. At each stage, labor productivity, labor skill, and the possibility of overtime work are considered. Highly skilled or certified technicians will charge more than regular workers—consequently, their rates will be much higher if they are asked to work overtime too.
3. Direct and Indirect Costs
All project expenditures can be divided into direct and indirect costs. Any specific activity that incurs costs such as labor, material, and equipment costs are known as direct costs.
On the other hand, overhead expenses or indirect costs, are costs that aren’t directly associated with the construction activities, such as administrative costs, legal fees and permits, security costs, quality control, and costs of temporary structures.
Trends in New Home Construction
The cost of building in a new home in today’s market does vary depending on the region. The average costs most builders charge comes down to around $100 to $155 per square foot, according to the National Association of Home Builders. Prices are often lowest in the South and increase as you head up North.
If your clients are looking for a custom look or tailored finishes, the cost will most likely be higher because builders are unable to maximize their own savings with bulk purchases.
When discussing industry trends, it’s essential to consider the impact of COVID-19. Despite construction being one of the earliest industries to restart operations during the pandemic, the dwindling demand for commercial construction projects resulted in a drop in construction and engineering costs starting in April of 2020. For construction contractors looking for labor and materials right now, this comes as good news.
At the same time, with the increase in DIY projects and home improvement plans, the prices of material and DIY kits began to increase. Part of this increase was caused by the disruption to the global supply chain that forms the foundation of the US construction industry.
Tips for Estimating New Home Construction Costs
You might be tempted to rush a new project during this time or give quick cost estimates to your eager new customers. But it’s important to take a step back and determine exactly what you’re working with before you throw out any cost estimations.
Here are some tips that’ll help you give your clients what they’re looking for while staying within budget:
1. Pin down the specific floor plan
You may have customers coming in that say they have something general in mind, but it’s difficult to provide reliable estimates when you have nothing in mind. Committing to a specific floor plan will make it easier for your customers and streamline the process for you too.
2. Give your customers an estimated cost per sq. foot
Giving customers a general idea of the cost per square foot will help them understand what they’ll need to spend on the basic construction. They can then determine where they want to economize and where they want to add some flair.
3. Learn more about your customers’ preferences
It’s a good idea to discuss what your clients have in mind. Ask them to bring in photos of projects they’ve liked online or show them work from your own portfolio. Educate them about styles and features so you can help them prioritize items and finishes within the budget.
4. Leave room in the budget
Make sure that your customers have stretched their budget thin. There should be some room for cost overruns and unexpected costs like permit fees, additional labor costs, or costs for working during a certain time of the year.
5. Choose a reliable construction cost estimation firm
Working with a reliable cost estimation firm can give you the edge you need to win bids and ensure that a project is profitable. A low bid might get you the customer but at the expense of your own margins. A detailed and precise material takeoff or construction estimate is an investment that helps you determine exactly how lucrative the project will be.
Outsourcing estimation not only ensures more reliable cost estimates but also reduces the estimation time too. Plus, since you’re no longer worried about estimation, you can focus on perfect execution of the task at hand.
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