How Home Builder Choice Affects Cost Per Square: Tract Builder (Part 1 of 3)

Project Management

Buyers looking to build new homes are quick to ask: “How much does a home cost per square foot?” Most understand that there are variables, but there is a learning curve. It depends upon the specific type of home, the impact of design factors, and the features they may want in a home. Let’s look at tract, semi-custom, and custom home building.

Many find it difficult to compare what one builder says versus another. Some become disillusioned once they start down the path with one or more builders to determine which one might be a good match. As they attempt to perform due diligence in selecting a builder, they are sometimes frustrated in trying to compare “apples to apples”.

How can you make an informed decision at the outset? How can you avoid a situation where financial expectations don’t match the result once you’ve chosen a builder, developed a design, and accurately defined all of your goals for your new home?

Critical to success is understanding the three primary classifications of builders — tract, semi-custom and custom. Knowing the distinctions will steer you to the type of builder who will be most appropriate for you. This will guide the selection process so that a comparison of prospective builders will yield “apples-to-apples” result.

A cost-per-square-foot baseline is a useful initiation point as the distinct genres of builders are explored. Let’s look at the three major classifications, starting with the tract builder, exploring base price, design parameters and features that can affect pricing.

A tract or production-oriented builder will usually offer a number of “set” floor plans with a few optional elevations. Along with this will come a relatively finite set of feature offerings from which you may choose. Some builders offer these with a “builder- ready” property parcel included within the price. Others may offer these “on your lot”. This is one of the major factors that will affect the cost per foot between tract builders, as property costs will obviously skew the average. While this is intuitively easy to understand, it can be hard to separate the land value in order to compare bids accurately. Many production builders own the entire subdivision where the properties sit; thus they can influence the regulations for architectural control and ensure that these are commensurate with the goal of minimizing production costs.

These builders’ home plans may have a few different layout options, and it may be possible for you to minimally customize a few features. You may, for example, be able to change an interior door location, or opt to turn a carpeted floor into one with a laminate or tile floor. In general, however, the production builder does not want to customize plans to any great degree as doing so will drive up the price.

It is important to note that these production-style homes have been engineered for economy. The builder will offer a plan that features large room sizes for those that cost the least to build while creating smaller spaces for rooms that are more expensive to build. You can expect kitchens and baths reduced to minimum sizing. Bedrooms and gathering spaces will be more generous.

In addition, the window and door count will be low. Design features, such as ceiling heights and roof complexities, will be as simplified compared to a semi-custom or custom home design. Tract home plans tend to be “boxy” and the focal interest for the elevation is generally enhanced only across the front of the home’s width.

Interior framing is usually straightforward, and ceilings of interest are minimized. The finish materials used, such as wall and trim paint, are adequate, but are usually at the low end of quality (yet easily upgraded). The systems within the home — HVAC, electrical, plumbing, etc. — will be code compliant at minimum – and possibly maximum.

If a property is priced within the package, it is most common to see smaller-sized parcel offerings. The home will be designed to “just fit” the setback requirements, leaving little space for yard development. Driveways and landscaping needs will likely be minimized.

Features and options for the exterior – roofing and siding — and for the interior finishes will be minimized as well. Tract builders often purchase products in bulk to create economies of scale, and they have pre-arranged pricing for labor for these products. For example, it is less expensive to hire a tile setter if he or she is installing 12-inch-square tiles versus 24-inch-square tiles which are more time consuming to set.

Cabinetry may be imported in quantities that will fill a shipping container full of a few standard designs. As a result, your plan may offer the choice between a white painted or singular stained wood door. Certain foreign-made goods are less regulated, and the materials used to make them are often the most economical for the manufacturer to utilize. Tract builders usually offer a fully stocked ‘design center’ that will display a finite offering.

There is one other important consideration in determining whether this least option is right for you. Typically, the relationship between the builder and the client is regulated to a staff member. The actual “builder” or license holder, may live in another city or state.

Next, we’ll explore cost per square foot and other considerations in selecting a semi-custom home builder.