What Makes Up the Cost of a Home?

A Building on a House Plan With Magnifier Glasses
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Buying a new home is the single largest purchase most Americans will make in their lifetime. Housing also functions as an investment or store of value. So it’s critically important that you take the time to do your due diligence for every home purchase, or custom home build. But let’s face it- determining the cost of a custom home prior to construction is no easy task. 

As many prospective custom home buyers are unfamiliar with site costs, land use permits, construction costs, and so on, it’s important to break down the process into individual steps. One way you can better understand the potential cost of a luxury custom build is to learn how much each step of the planning and construction process costs. This can help you stay safely within your budget and help defend the large investment you’ll be making into your new home.

Let’s look at the four major factors that determine the cost of any new construction home- fixed costs, price per square foot, structural costs, and individual specifications. 

Fixed Costs 

Fixed costs, opposed to variable costs, are those that will remain static over the life of new home construction. For instance, the cost of the land will remain the same, but your construction costs may vary due to inclement weather, labor or material shortages, and other potential scenarios for a cost overrun. Typical fixed costs for a custom built home include:

Tap Fees

Tap fees are charged when builders install a new sewer or water connection to a home. These fees depend on the size of the water line and piping connection and the individual geography of your home. Areas with scarce water, or water that is difficult to deliver may have higher tap fees. These fees will vary widely from county to county and city to city. 

Permit Fees

Most cities, counties, and unincorporated areas charge building fees for new construction. These fees are separate from building costs. You pay permit fees to gain permission to build, and the amount will depend on the size of the home you are building or the size of the lot, materials and overall valuation. 

Site Purchase Costs

The costs associated with the site on which you plan to build your custom home. Keep in mind that some costs will differ depending on the accessibility and ease of building on the lot. For instance, bringing in utilities or septic design. Other fixed costs in every project include the survey and a soils report. So your purchase price will remain static but other costs associated with actually building on the site will vary from location to location.

Builder Fees

To get your custom home built you’ll need to pay a builder to oversee the project. A builder’s fees can range from between 15-20%, depending on the scope of the project and the contract type. With a fixed-price contract, the builder’s margin will be included in the overall contract price that the builder and custom agree to before beginning construction. With a cost-plus contract, the builder will set their fee at a percentage like 17% and that is their margin on whatever the project ends up costing in the end.  

Square Footage

Square footage is the primary driver of costs when building a home. The larger the home, the higher your total costs will be. However, the individual cost per square foot may actually decrease when building a larger home, depending on the efficiency of the design. Keep in mind, this is the first category to start with if desiring to find cost savings on the project budget. From foundation up to the roof, the smaller the footprint of the home, the less the overall cost.

On a related note, the square footage of your home will determine costs in other categories like finishing, lighting, HVAC, structural steel, linear lumber, plumbing runs, electrical, etc. The costs for these categories can vary wildly depending on local market conditions, particularly the cost of labor and materials given demand. 


The physical structure of your custom home is another major factor when it comes to cost. In most cases, simpler builds with basic designs, uncomplicated foundations and square box framing are cheaper. That’s one of the reasons why a typical tract or production home is significantly less than a custom home per square foot. A more complex structure means more materials need to be used, like trusses, framing, drywall and interior trim. More complex designs require more skilled labor for installation and usually showcase a more diverse palette of materials. The key to cost control in complex custom homes is the efficiency of the design. Any opportunity to stack gains efficiency and lowers cost. For example, a sprawling ranch design is more expensive to build since it is far less efficient than a stacked two-story. This is because the footprint is spread out, which entails more foundation, more roof, longer runs for plumbing, electrical and HVAC. 

A seasoned home builder who understands cost control will direct the architect in the early design phase to create an efficient plan that stacks. If a homeowner wants a ranch, the builder will monitor the footprint of the main level to keep the design within the budget parameters. An additional note, when exploring cost savings, remember that the lower level or basement offers the cheapest cost per square foot to finish in the home. Sometimes the perceived savings from choosing not to finish a basement isn’t worth the trade off of dollars saved in the long run. Especially considering the inflationary costs to come back and finish down the road. 


Finally, the individual specifications used in your custom home build will have a huge impact on the total price of your build- after all, marble or cherry hardwood floors are going to cost more than LVT or linoleum! Specifications refers to both the interior finishes and the overall specifications of the products to be used in the home’s construction- from exterior materials like stone, siding and roofing tile, to interior materials like hard surfaces, appliances, and interior trim features. 

The quality of the materials used, features you choose, and amenities you place in and around your home will all determine the aesthetics of the home, and especially the costs. Some common items you might want to consider when calculating costs include:

-Hard Surfaces (Wood flooring, tile, carpet, gym floor, garage epoxy)


-Countertops (Quartz, Granite, Marble)


-Interior and Exterior Paint

-Interior Trim (Built-ins, paneling, feature walls, decorative beams, doors)

-Landscaping and Outdoor Fixtures and Features

-Electrical Systems (Automation, A/V, security, EV car charger)

-Plumbing Fixtures

-Heating and Air Conditioning Systems

-Exterior Doors and Windows

….and anything else you expect to find in and around a well-appointed luxury home, besides the structure and foundation. The fun and exotic features that spice up a home with “sizzle” are the hallmarks of luxury custom homes and what draws homeowners away from basic cookie-cutter production homes with basic designs and finishes. Reach out to us to begin exploring how to create your unique, one-of-a-kind home with your wish list of features and personalized selections.

Interested in learning more about the benefits, costs and value of custom home building? We’ve got you. 

Check out our website for more information, or reach out to us on Facebook or Twitter– we’d love to hear from you!

-Thomas Sattler Homes

Found the perfect lot? Already own land? Call us today to schedule your free feasibility estimate! Know your total project cost before you commit to any decisions. We pride ourselves on a customer-oriented experience, always putting your needs first. You can reach the Thomas Sattler Homes Sales Team at (720)449-3562 or online at ThomasSattlerHomes.com.

Thomas Sattler Custom Homes is Colorado's Luxury Home Builder. We are family owned and operated and have been serving the Denver metro area for over 20 years. If you are interested in a custom home or just want to learn more. Please reach out to us.

Call us today to schedule your free feasibility estimate! Know your total project cost before you commit to any decisions. We pride ourselves on a customer-oriented experience, always putting your needs first. You can reach the Thomas Sattler Homes Sales Team at <a href=”tel:7204493562″>Call (720)449-3562</a> or online at ThomasSattlerHomes.com.