Metro Detroit

BUILDER COSTS EXPLAINED

April 11, 2016

Sure, sure – we know what you’re thinking: great, another New Home Experts drinking game.

And you would be correct.

But before we encourage you to do a shot every time an impediment to the building process surfaces, perhaps a quick explanation about why new construction costs more than resale.

At least, beyond the obvious “because it’s new” thing.

The main factor is land costs; while the actual cost to build a home is virtually the same anywhere in metro Detroit, it’s the land that determines the final cost and, if you’ve been looking for a home in some of the more desirable areas around southeast Michigan, you’re likely aware that land is not cheap in popular locales.

Beyond land, however, are a number of smaller nagging builder costs that can add up quickly, as illustrated in the chart above, and explained in this recent post by John Burns Consulting.

New regulations to protect the environment or to shore up city finances have made the process more expensive and less profitable for builders – particularly when it comes to lower priced homes.

Those massive 50% profit margins you assumed builders are probably making, are actually closer to 12% – 15%, or maybe 20% if they’re really killing it.

The end result is likely a home that’s better for the environment and more profitable for the city – and the city services that will support the home – but the down side is the higher price.

Curious to know whether building or renovating is right for your budget?  Connect with us and learn more!