In the realm of construction, cost is a pivotal factor that every homeowner must consider. Whether you are building your dream home from scratch or renovating an existing one, your budget plays a crucial role in shaping the outcome of your project. As you step into the intricate world of construction costs in Atlanta, it's essential to grasp some key concepts to make informed decisions.
Cost Plus vs. Fixed Price Contracts: Balancing Price and Risk
When it comes to construction contracts, the two most prevalent types are Cost Plus Contracts and Fixed Price Contracts. Cost Plus Contracts involve paying the actual cost of labor, materials, and other expenses, plus a fee for the contractor’s services. While this offers transparency, it introduces uncertainties in the final cost, as it depends on the project’s progression.
On the other hand, Fixed Price Contracts provide a predetermined total cost for the entire project. Although this offers stability, contractors will significantly increase their margins and include a contingency sum to cover unforeseen expenses, in all likelihood making the initial estimate higher. Choosing between the two boils down to your risk tolerance and preference for financial stability.
At New South Homes, we only offer cost plus contracts because we think they're the most fair and offer the best outcome for all parties. Cost plus contracts are open book, so clients have access to every invoice and expense that goes into the project. The markup in a cost plus contract is fair to the builder while still being much lower than the markup for the same project in a fixed price contract. We also feel like fixed price contracts encourage cutting corners in build quality, which is something we won't do.
The Deception of Cost Per Square Foot: Why It’s Misleading
Many individuals often inquire about the cost per square foot, believing it’s a straightforward metric to gauge construction expenses. However, this approach can be deceptive. The cost per square foot varies significantly based on location, materials, finishes, and the complexity of the project.
What level of finishes do you have in your head vs. what the builder assumes in the quote? Does that number include non-conditioned square footage spaces like the garage, attic, porches, etc? What about pricing on the exterior of the home like landscaping, hardscaping, fire pit, pool, and so on that are not included in the total square feet? Most importantly, you are not building a commodity; the quality of a home by one builder does not equate to another. Instead of relying solely on this metric, engaging in detailed discussions with your builder is essential to understand what is encompassed within the estimate and what outcome is expected.
Before We Get To The Numbers
I'll go ahead and put it out there that building or renovating a home is expensive, maybe more so than it's ever been. Home prices have increased way faster than incomes over several decades. New homes have become increasingly comfortable and functional, but also increasingly complicated, so more people have to get involved in your project than ever before. A minimum of 200 people will have a direct impact on your home build and, as nice as I'm sure they all are, they aren't doing it for free. Additionally, we've been hearing that for every 10 people that will be retiring from the construction trades over the coming years, only one new person is coming in to take their place. That means that truly skilled labor is getting harder to find and those tradespeople that you actually want working on your house are getting more and more expensive. Unfortunately for everybody, that problem doesn't seem to have a solution at the moment.
That said, a new or newly refinished home can still bring incredible value to you as a homeowner. Never before have homes been able to offer you this level of comfort, entertainment, functionality, and efficiency as they do today. A well designed and built home will also always be in high demand.
The Numbers - Atlanta (2023)
The price you pay for a renovation or a new custom home in Atlanta (or anywhere) will first depend on the type of contract you sign. Cost Plus contracts we've generally seen a markup between 15%-25% depending on the size, scope, and location of the project. Fixed Price contracts you'll never know the exact markup, but we've seen anywhere from 35%-100% markup.
We'd like to reiterate that cost per square foot is a terrible metric to find out what a home will cost, but we also understand that, as homeowners, you need to start somewhere. Just take these numbers with a grain of salt. New custom homes (not trac or spec homes) generally start at a minimum of $250/sqft but a more common and realistic starting point is $300/sqft, which doesn't include lot costs. Whole home renovations are slightly less, closer to the $225-$275/sqft range. Those numbers might seem high to many, but they're actually well below the national average for major cities. Most major cities start around $500/sqft and the top markets like California or Boston can start anywhere from $1,500-$2,000/sqft.
We hope these numbers are a helpful jumping off point for your home project, but please don't put too much stock in them. While you might be ok with engineered hardwood floors, the next person might be dead set on 8" European Select Walnut hardwoods. Multiply that by the literally hundreds of decisions you'll have to make throughout your build and you can see why prices can vary so much. As always, please reach out to us if you have questions or are interested in starting your own home project.