What makes up the price on a newly built home?

From the market the new home is located in, to the lumber used in the home’s frame, plus the cost of wages for laborers, a new home’s price is influenced by many circumstances.

Pre-construction costs, construction expenses and the usual details like location and square footage all contribute to the final price of a newly built home. Pre-construction costs include everything from the price of the lot to how the home’s construction is financed. Construction costs account for the bulk of the home’s expenses; other than framing and foundation work, everything from plumbing setup to wages for laborers are all part of the process. Let’s deconstruct the costs that determine why newly built homes cost what they do.

A new home’s price will be determined by the lot it’s on, the construction company on the project, financing and more.

• Cost of lot: The cost of the lot affects the final home price greatly, not only because of location and size, but for things like tree removal, leveling (if it’s on a steep slope) and even soil quality. If a lot required demolition, that would add anywhere from $6,000 to $20,000 to the cost.
• Construction company: Per the National Association of Home Builders, costs per square footage includes items like overhead and general expenses, sales commission fees, financing and even profit fees. There is also a difference between developers and builders. Developers can be easier on budgets versus custom home builders; they offer a range of pre-designed floorplans, at the cost of not being able to personalize every feature to your liking. Large-scale developers are usually tapped for subdivision neighborhood construction.
• Financing: To purchase, explore some of our mortgage options. You may be able to negotiate special loan financing if the newly built home’s developer or builder has a relationship with your lender.
• Permits and inspections: Permits and inspections are costly and time-consuming; the developers or builders needed permits from both the city and the county to get started. They were also required before and during the construction process at different checkpoints. The builder needs to make a profit, so it’s possible you’ll be paying some of these costs that inevitably factor in the new home’s total price.

A new home’s price will vary tremendously based on the factors we already covered, plus everything from labor wages, cost of lumber for framing and plumbing to name a few.

• Labor: A shortage of skilled workers has led to wage increases for these employees, since they’re far and few in between and highly specialized. Laborers include construction managers, roofers, electricians, plumbers, concrete contractors, framers and more.
• Foundation: Nothing can be built without a stable and sturdy foundation. This process involves concrete and constructing retaining walls. Excavation may have also been a part of this process. If the new home’s in a tornado or earthquake-prone area, extra care should’ve been taken in solidifying its foundational safety or in developing a basement.
• Major systems: If the land was completely undeveloped, it’s likely you’ll be fronting the costs of expensive major systems implementation, like HVAC, plumbing, sewage systems and electrical lines. It’ll be pricier if the new home’s lot is larger or was built with specific amenities. A geothermal heat pump, for instance, is costlier than a standard airflow system.
• Framing: Generally one of the most expensive parts of building a home, this lumber-intensive component brings a residence to life. How much lumber was used to create the home? What was the price of lumber when it was being built, and were tariffs in place? Also note that a home that utilizes metal over wood studs will be pricier.
• Exterior finishes: Important in developing a home’s style, exterior finishes include doors, windows, siding, garage doors and roofing with brick. If a newly built home is close to completion, you may have room to negotiate here, should you prefer standard windows and doors over expensive custom ones. Decks, patios, pools, landscaping and driveway accents could also drive up a home’s price.
• Interior finishes: Highly variable in pricing, interior finishes include trim, paint or wallpaper, cabinets, appliances, flooring and fireplaces. This could’ve become costly if the developer or builder utilized the services of an interior designer.

A newly built home’s location will have a massive impact on the overall price. Because of cost-of-living expenses, certain areas in the U.S. are pricier than others to build in. Some states have regulations that are stricter than others, excluding certain building materials from being used. Below are regions from throughout the country, ranked by how expensive they’ve been to build and sell new ~2,000-square-foot single-family homes per Today’s Homeowner and Census data:

1. Hawaii
2. Northeast
3. West (including Alaska, excluding Hawaii)
4. Midwest
5. South

Note that these rankings are based only on the cost of construction, and do not include the price of the land to build on.

It goes without saying that the more bedrooms and amenities a home has, the more square footage and money it requires. A multi-story layout is pricier as it poses more of a challenge to a construction company. Plus, as mentioned above, the cost of a 2,000-square-foot home is going to be more expensive in some places than others.