You have some cash reserves and the willingness to jump into a brand new project, your dream home. It can be intimidating to know where to start, an architect can help but you can do a lot of that front end work yourself. Let’s understand how to get an initial estimate so you can figure out what amounts you need to set aside and plan for.

You might think, how hard can it be? I will google the estimated cost per square foot to build in my area then get an idea of how big of a house I want and just do simple math, right? Let’s take a look:

In Madison average construction costs are between $220/SF and $290/SF. I think I would like a house that is about 2,500 SF plus a 2 car garage. Simple math dictates that I will need between $550,000 and $725,000 for the house, and let’s say the garage can be built at $150/SF, we will need $90,000 for that garage. Simple right? I just multiplied the cost per square foot by the area of the house I want. However, there’s a huge gap between the low and the high estimates, makes it hard to swallow.

The truth is that there are a lot of other cost that those average prices do not include. In order to understand this, we must identify the expenses and separate them by type. The basic approach will by to divide between what is called Hard costs and Soft costs.

Hard costs are costs that are directly related to your construction project. Some refer to these as brick-and-mortar costs, because these costs include the structure, construction site (utilities, equipment, paving, etc) and landscape.

When it comes to budgeting, hard costs are easier to estimate. They’re tangible and revolve around labor and materials. While labor and materials are not set in stone, those prices are less likely to drastically change.

Soft costs, on the other hand, are costs that are indirectly related to materials, labor or the physical building of the project. As you can imagine, these intangible costs will prove far more difficult for you to estimate as you build a budget for your project.

Soft costs can persist long after the project has been completed. Some of them will be ongoing and regular costs related to maintenance and maintenance insurance. They can occur anytime in the life cycle of a project. It doesn’t mean these soft costs are impossible to estimate and track—but they are definitely moving targets.

Lets look at our example by using a calculator:

Note how we include Hard cost items and the price per square foot start adding up, in the example above we are not including the cost of the land. The assumption is that you already own the land. We’ll use the $230 per square foot for the actual house and let’s say we’re adding a two car detached garage, there’s less complications with that so we’ll put it at $150 per square foot. In the end we we have a cost of about $215 per square foot for our building and garage. Great! we’re under the average. However, the contractors have fees for their services which generally include markup and profit and the general conditions are sort of the contractor’s administrative portion of their work. After that, we have come at what the average was telling us from our quick google search, we’re right in the middle at about $262 per square foot, remember no land is included here. I want you to also note the construction and design contingencies, that money, is money that you keep aside in case of unforeseen events, you might not even need to tap into that at all, but is good to have. Now let’s look at the Soft costs:

As mentioned before, Soft costs are a moving target and really hard to pin, there are other permit fees that we just cover with a miscellaneous amount just to make this as quick as possible. In essence, we’re trying to account for as much as we can. Then we move to consultants, at a minimum, you will need the ones outlined above Architects typically charge between 10 and 20% based on complexity. You can have a builder help you with the house without involving an architect, you will have to choose from their standard options A, B and C. Then there are other costs and then there it is again, a contingency on those costs.

Let’s then review how much is this house per square foot now that we included more detail into the estimate.

We started with a quick estimate based on a google search, then we added more information into our calculator to start breaking down hard and soft costs and account for as many items as we can think of. Once we had the total Hard and Soft costs we realized that the price per square foot from our initial search was pretty close, we got about $292/SF. Then, we add the part that everyone misses, the cost of financing. After this the price per square foot turns to be about $309/SF. Did I mention the cost of the land is not included here?

I hope you have found this helpful as you figure out your own budget, I personally like to work with people that are thinking about building their house but is 2 to 5 years down the road, it allows for better guidance as they perform a lot of the work themselves without paying massive fees to an Architect. Planning will save you money in the long run. When you ask someone how much was their house per square foot, know that they might be giving you the cost of construction alone and nothing else.