Understanding the Cost of a New Home

Consumers face many problems when they set out to buy a complex product such as a new home. To obtain the best possible value a consumer must understand the features and quality levels offered by the numerous builders in their area. Their level of knowledge and willingness to search for information are key to becoming an informed consumer and, ultimately, making the right choice. 

There are many factors that influence the cost of a new home. These factors can be divided into three main categories; the building lot, construction costs and standard features included in the price.

Lot:

Lot size is a major contributor to the cost of any new home. An increase in lot width of five feet will result in a selling price increase of between $12,000.00 and $20,000.00. This may be even higher in some areas. Location, walkout potential, the street type and proximity to schools are other factors that influence the cost of similar size lots.

Construction costs

Design:

Design is responsible for approximately 90 percent of the non-finishing cost of a home. The design determines lumber
requirements, roofing requirements, foundation size, number of bricks, amount of insulation and the amount of drywall required to build the house. As well, two-story entries, cathedral ceilings and high ceilings require more materials thus increasing the cost.

A common variation seen in design is the garage width. Some builders call a 16.5 ft. wide garage a double car garage.
Although, its true that this width will accommodate a double garage door, it may be difficult to get two cars into the garage and comfortably get out of the vehicles. Other builders prefer a double car garage to be 18+ ft. wide. For example, if you have two cars that are each 6 ft. wide, the total width is 12 ft.. On a 16.5 ft. wide garage the remaining 4.5 ft. will have to be split into three parts each 18 inches wide. In theory, you have 18 inches to open your door and exit your vehicle. If the garage is 18.5 ft. wide the remainder will be 6.5 ft.. Dividing this into three will result in 26 inches being available to open the door and exit vehicle. The extra two feet added to the garage will increase the cost of the house. 

Something as simple as the pitch of a roof can have a significant impact on costs. The pitch of a roof is defined as rise over run. So, for example, a 5:12 pitch roof will rise five feet in height for every 12 ft. of length. To increase from a 5:12 pitch to an 8:12 pitch roof will consume 15-20 percent more shingles, plywood and longer roof rafters resulting in a higher total cost.

Quality of Labour:

The builder hires trades to do most of a work. Within any given trade, there can be significant variation in cost and the quality of the work undertaken. Since trades are facing time pressures to get jobs completed, pay their employees and still make a profit, the lower the price the faster the job must be completed for them to make money. The lowest cost trades will likely complete the job quickly and their work may not be of the highest quality. Conversely, trades that charge a higher price will allow more time to complete the work and still make a profit. The builder is responsible for making the trade-off between price and quality.

Quality of Suppliers:

Just as with labour, the builder must decide which suppliers will supply the materials for a home. Not all suppliers are created equal. Some suppliers charge slightly more, offer better service and in some cases higher quality materials. For example, in the Kitchener Waterloo area there are approximately four different types of lumber suppliers. One offers high-quality materials and good service and is the most expensive of the four. Another one offers comparable materials and slightly poorer service and has
generally lower prices than the first mentioned. The third supplier offers lower quality materials than the first two and offers service comparable to the second. The remaining type of suppliers are high-volume low-cost suppliers. Their service is the poorest and their materials are of the lowest quality of all the supplier types. 

Optional Materials:

All homes built must comply with the Ontario Building Code which is considered a minimum standard. The builder is faced with the option of building to the minimum or adding additional materials. The addition of optional or upgraded materials increases the price for any given home. One prime example is a product called drip edge. This is a strip of metal, that goes along the edge of the roof underneath the shingles, coming off the edge of the roof down over the front of the fascia protecting the joint line between the aluminum fascia and the roof shingles from the water draining off the roof. This will increase the lifespan of the roof plywood. Another example is brick over the windows. If you look, some builders will put brick over the windows others will not. When brick is put over a window a steel angle is required to support the bricks. As well, there are labour and material costs for the additional brick in these areas. Again this increases costs.

Not all windows are created equal, even those from the same supplier. Just as builders offer options so do window suppliers.  These include Low E glass, upgraded hardware, vinyl jambs, brick moulds on exterior doors and decorative glass panels.
 
Painting:

Painting is one area where consumers face high variability in quality. There are three main inputs in the quality of paint. The first is a type or quality of paint. Builders typically use a flat finish paint that hides most of the defects on the walls. This paint does not cleanup very well and tends to mark easily. Most people I speak to tend to repaint using an eggshell or semi gloss finish paint, at which time the drywall defects will show up and it is now your responsibility to repair them. One person mentioned to me that they requested their builder use an eggshell paint and that they had to pay an additional $900.00 for increased paint costs and for the increased costs of higher quality drywall taping and finishing.

Differences in Trim

Another area where buyers will see significant differences is the trim the contractors use and which areas are trimmed. On a tour of a home, look at the width of the door casing and baseboard. Some builders use 2 ¼ in. casing and 3 in. base and others use 2 ¾ in. casing and 4 in. base. 

Secondly, look at what has been trimmed in one but has not been trimmed in another. Look at the closet doors. In some homes you'll see the builder has just used drywall and maybe a small piece of molding around closet doors. In other homes you'll see the builder has used jambs and casing around the closet doors. The use of jambs and casings does increase the price of a home and provides a more finished appearance. Also, In some homes you'll find the builder does not trim archways. Again the use of jambs and casing on archways increases the price of a home and also make it look more finished. 

Standard Features Included in the Price

Be aware that builders who sell through model homes typically load these homes with extras. The price that is advertised is the base model without all of the extras. Personally, I have been in homes where the extras added up to 25% of the price of the base model. The result is that your home may look significantly different from the model you viewed. Some builders are now providing handouts listing the extras that are in their model homes. Be aware and become informed as to what each builder includes in their homes and the cost of any extras that you know you want in your new home. The Ontario New Home Warranty program has identified customer expectations as their number one complaint.

The last area, which has a bearing on price, is what is included in the price. Some builders include a final survey and others charge extra. Is the ONHWP registration fee included in the price? What type of driveway is the builder providing? Be sure when you’re comparison shopping that you’re informed what's included in the price and the price of any required non-included items.