In 1950 the average new house in the United States cost eleven thousand dollars and had a thousand square feet. Today the average new house is more than twice as big with twenty-two hundred square feet and, at two hundred thousand dollars, costs about eighteen times as much.

Since the price of everything has gone up exponentially over the last fifty years, the huge price increase for houses is part of a larger picture. But compared to all the other purchases that you will make in your lifetime, a house is by far the largest. Yet you still end up asking yourself: Why do houses cost so much?

The single largest expense for any house is the land it sits on. So where you decide to build your house will have the single biggest impact on its price. Of course, the size and shape of your house will also affect its cost. A simple box with a single-pitch roof is the cheapest and most energy efficient house you can build, but most people think it’s boring. And with all the rooms that people want to put in houses today—three or four bedrooms, a family room, a home office, formal living and dining areas, a two-car garage, and even a home theater—the simple but efficient box would be enormous and look like a beached whale. The more you depart from the basic box shape, though, the more it will cost you. An L-shaped house with a family-room wing out the back and a formal living/dining wing to one side of the entry foyer will have attractive interior spaces with windows on three sides. But all those extra walls, foundations, roof area, and windows will quickly drive up the cost. Even a more modest extension from the basic box such as a second garage bay will make a house cost more. The sprawling L-shaped plan would also need a big lot, which will add to its cost.

With a production-built house, the builder picks the lot size, house size, house shape, all the materials and finishes, and names his price. As a buyer, you have no control over these choices. But you naturally ask: Is this product a good value? Most buyers apply a cost-per-square-foot test, but this is not the value benchmark that is generally assumed, and using it to compare builders is not as informative as you might think. No two builders work in exactly the same way or use the same materials. Two houses side by side that are built by two different builders may look the same, even to the point of having almost identical floor plans. But take a closer look. Builder A has hardwood flooring everywhere and Builder B offers it only in the foyer. Builder B’s house will cost less and have a lower cost per square foot. Which house is the better value? There’s no one right answer here—you will have to decide for yourself.

With a custom-built house, you pick everything, so you have control over costs, and even how you get a price. If you are working with an architect, the traditional way to get a price is to invite several builders to competitively bid on a set of contract documents—written specifications and drawings. The idea here is that as a consumer you are better served by competition. In fact, though, you may be better served by engaging a builder when you engage the architect. As the architect designs the project, the builder, who know prices to the dollar because he’s in the marketplace every day, monitors costs. This avoids the enormous effort of designing a project, sending it out for bids, and then getting prices that are over your budget, leaving you either to redesign and scale back or to scrap the project altogether.

When a custom-built house does come in over budget, many owners decide to purchase some of the materials themselves to save the builder’s markup and avoid redesigning anything. This may sound like a sound strategy that avoids painful choices. But it can easily backfire, not save the money you expect, and lose the builder’s goodwill.

The hard truth is that as you go through the process of getting a price for a custom-built house, you will constantly bump up against the three constraints that affect all jobs—budget, quality, and quantity. You can have any two of these, but not all three. If you want a four-thousand-square-foot house and Brazilian cherry hardwood floors throughout, the budget must be very large. If you still want the cherry hardwood floors but can spend only a hundred thousand dollars, be prepared for a very small house. If you want a large house, but your budget is fixed at a hundred thousand, you will have to settle for builder-grade carpet and a base-grade sheet-vinyl flooring for the kitchen and bathrooms. As the production builder makes his choices, he faces these same constraints and goes through the same budget-quality-quantity trade-off.

Where does the money go? Although the finishes and fixtures that warm your heart can make a house more expensive, the far less sexy “sticks and bricks” form the bulk of construction costs. And, as noted above, the single most expensive item is not the house at all but the land, which averages about one quarter of the average sale price, according to the National Association of Home Builders (NAHB). In many markets, though, the land cost is typically closer to a third of the total sale price.

How about the other two-thirds to three-quarters of the total sale price? Here’s how the NAHB breaks down the costs:

♦  The most expensive item in the house itself is the structural framing and sheathing—about 20 percent of the total sale price. How rooms and the overall building envelope are sized, however, can make some difference here. Production builders, who have honed building efficiencies with scientific precision, minimize waste by having overall building dimensions and room sizes conform as closely as possible to standard sizes for framing lumber, plywood, drywall, and other building goods.

♦  In areas where basements are common: excavation, foundations, and backfill costs account for about 9.6 percent of the total sale price.

♦  Windows, on average, account for 4 to 6 percent of the total. Since substituting cheaper windows will not force clients to otherwise modify a design, builders say they are an inviting target when budget overruns occur.

♦  Plumbing fixtures make up 5 to 6 percent. These are also manufactured in standard sizes, and a seemingly innocuous change can quadruple the cost. A standard five-foot bathtub might be two hundred dollars, but a nonstandard, five-foot, six-inch tub with the same finish and color could be eight hundred dollars.

♦  Drywall is 5 to 6 percent. Most buyers give short shrift to this essential, but nationwide, drywall shortages have both driven up its cost and delayed construction.

♦  The heating and air-conditioning system, another essential that rarely captivates buyers, accounts for 4 percent.

♦  The electrical work, another 3.8 percent.

♦  Kitchen cabinets and flooring, the two items that most buyers spend the most time agonizing over, account for only about 5 percent of the total. This flooring figure, however, assumes a mix of carpet, hardwood, and ceramic tile or sheet vinyl in the bathrooms and kitchen. Eliminating carpet altogether and installing hardwood everywhere would, of course, increase the proportion of the budget for flooring.

♦  The other line items such as gutters, light fixtures, basement slab, and an asphalt driveway fall into “the little things that quickly add up” category.

thecost-per-square-footmyth

You want the best value for your money. If you’re like most buyers, you will typically assess this by comparing builders on a simple cost-per-square-foot basis. Unfortunately, this figure doesn’t tell the whole story. If it’s low, you’re not necessarily getting more for your money. If it’s high, you’re not necessarily getting gouged. But it’s understandable that you would make these inferences. In our current Era of the Major Discount, every shopper routinely encounters a wide range of prices for the exact same item.

The home-building arena, however, requires a different mindset. No two builders work alike, create identical products, or even use the same materials. To make a fair and accurate comparison of Builder A to Builder B, you have to look beyond their prices and cost-per-square-foot figures to the product. It also helps to have a grasp of the many variables that affect a builder’s cost.

building shape, style, and size

Design can affect cost dramatically. As noted earlier, the cheapest house is a box. But most buyers, especially those who seek out a custom builder, want character and style. All those corners on the exterior and a multi-gabled roofline, however, will cost you. If a builder usually offers a two-story house with thirteen or fourteen corners and you want to add ten to fifteen more, the cost can easily go up by 30 percent. More complex designs with as many as sixty corners will raise it even more.

The style can also affect its cost. A simple, spare look is always more expensive than a traditional colonial look or a Spanish mission style because any flaw will show and the workmanship must be more exacting. Even simple light fixtures cost more than gaudy ones.

Custom builder Randy Rinehart of Charlottesville, Virginia, said his clients frequently want dramatic two-story spaces to add flair. But they seldom realize that these drive up the cost, especially evaluated by the square foot. “For what you pay to get the volume and the look, you might as well put a floor in there and get usable space on the second floor. The cost is almost the same.”

Even when the square-foot figures are the same, some plan configurations cost more than others. While you may know that a one-story house costs more per square foot than a two-story house with the same floor area (because the one-story has a larger foundation and roof area), you may not appreciate more subtle distinctions that affect cost. For example, moving the master suite down to the first floor will raise the cost, unless you eliminate other first-floor functions such as a formal living and dining room, because your builder will end up having to add a master suite wing on the back. This will increase the cost for the foundation, exterior walls, and roof.

Adding or subtracting floor area will affect the price, but not as much as you might think because many of the fixed costs—heating and cooling, plumbing, electric wiring, appliances, and a garage structure with a paved driveway—must be factored in no matter what size the house is.

Finally, materials also affect cost. There is a choice and price range for nearly everything—the only constraints are taste and budget. Do you want hardwood everywhere? Only in the foyer?

analyzing the cost-per-square-foot figures

The cost-per-square-foot figures can give some useful information if you interpret them carefully. After you’ve calculated the cost-per-square-foot figure for two production builders with seemingly identical houses side by side, try to figure out what accounts for the difference.

For example, if Builder A’s standard kitchen cabinets are white with vinyl-wrapped raised-panel doors, and Builder B has oak cabinets with flat-panel doors, Builder A’s costs are higher. If Builder A offers a bigger master bathroom or a soaking tub as standard, his cost will be higher. Builder A’s costs may also be higher in less obvious ways: He may use a 90 percent–efficient gas furnace instead of a 78 percent–efficient one. Or he may use cast-iron waste pipes instead of plastic ones, so that when a toilet is flushed it won’t be heard all over the house. Or he may include a better grade of windows. Builder A’s house will cost more per square foot, and you may decide that it’s the better value.

When a project comes in over budget, custom builder Vince Ghiloni of Newark, Ohio, says that clients often try to shave a few feet off the end of the house, believing that this will save enough money to keep the rest of the design intact. This rarely lowers the cost as much as his clients expect because only raw square footage is being eliminated. For example: The plan was a two-story, 3,000-square-foot house that priced out at $105 a square foot; shortening by 2 feet, and hence eliminating 160 square feet of space, will not reduce the total project cost proportionally at $105 × 160 square feet, or $16,800. The cost reduction would be closer to $5,000. If the clients were willing to nix a full bathroom with a tub/shower, sink, and toilet, which is much smaller in floor area (only about 60 square feet), they would lower the cost of the project by nearly the same amount, about $5,400.

Conversely, Ghiloni also pointed out, extending this same 3,000-square-foot house by 2 feet (and hence adding 160 square feet of space) would add only about $5,000 to the cost, not a proportional $16,800.

When comparing custom builders, you won’t have two production-built houses side by side that you can compare. But it is helpful if you have a plan that you can show each builder and then ask what it would cost to build. If you don’t have any plan as a basis for discussion, the builder will try to elicit what you want in the way of style, room count, finishes, and amenities. Without knowing what your budget is, however, the builder has no way of knowing whether or not what he is suggesting is realistic for you. Unfortunately, many buyers fear that if they tell the builder what they can afford, he will overcharge, so they don’t give a straight answer. Their hesitation is understandable. But many exasperated builders point out that if clients are not forthright and forthcoming with a budget, much time is wasted designing and pricing a project the clients ultimately can’t afford.

“What is the sense of pricing out a house at half a million dollars if you only have three hundred thousand?” asks Vince Ghiloni, the custom-home builder in Newark, Ohio. “Everyone has a fudge factor. If you have a maximum of three-ten to spend and say three, this is certainly close enough.”

Another problem with the money discussions is that most people don’t know what things cost, so they don’t know what quality a given cost-per-square-foot gives them. How does a house costing a hundred dollars per square foot differ from one costing two hundred per square foot?

The ANSI Z765–1966 standard applies only to single-family dwellings—detached, freestanding houses or attached town houses. It does not apply to multi-family structures such as condominium complexes or apartments. The standard is also limited to over-all dimensions; it does not cover interior dimensions or rooms that are typically measured from interior wall to interior wall. But it does give figures that you can use to compare Builder A and Builder B. The major distinctions among space are “finished” or “unfinished,” and “above grade” or “below grade”:

♦ A “finished” area is defined as “an enclosed area that is suitable for year-round use.” The finished-area calculation also includes all walls, both interior and exterior. “Unfinished” areas most commonly include garages and unfinished basements.

♦ “Above grade” includes all floor levels that are entirely above the ground. “Below grade” includes all floor levels that are partially or entirely below the ground. When a house is built into a hillside, the entire structure will receive the “below grade” designation.

The area is measured at the floor level, so that two-story spaces such as entry foyers and family rooms can only be included in the calculation once. Some of the standard will strike you as nitpicky—for example, a fireplace and chimney can be included only when the hearth is at floor level. But seemingly minor differences of twenty-five to fifty square feet here and there can add up to a substantial amount. (See Resources for information on getting the ANSI standards.)

To help buyers correlate size, design, finish quality, and cost, most custom-home builders show them finished houses to clarify what is realistically attainable with their budget. When the “realistically attainable” is a plain-Jane house, however, staying within a budget during the planning process is often a constant struggle, because few clients can resist the temptation to start dressing things up.

howmanysquarefeet?

Before you start comparing Builder A’s house to Builder B’s on a cost-per-square-foot basis, ask how the square footage was calculated. Unbeknownst to most new-home buyers, the home-building industry adopted a standard method for calculating square feet only in 1996, and it is not yet in universal use. The conventions for calculating square-foot figures still vary regionally, and even within the same market by various builders. Some builders include only what you can walk on, excluding regular-sized closets but counting walk-ins. Others count two-story spaces twice because the entire volume is finished space that must be heated and cooled.

Even when builders in the same market are consistent in their measurements, their notions of square feet and buyers’ notions are likely to differ. Most buyers think this means “useable space.” But most builders calculate it in terms of the total area occupied by the building, and this can be substantially different. For example, using the builder’s approach, 150 to 200 square feet of a two-story house billed as “2,200 square feet” can be solid wall.

To further complicate matters, Realtors and appraisers have used methods for calculating square feet that differ from the builders’. To bring some order to this picture, the National Association of Home Builders Research Center in Upper Marlboro, Maryland, organized a committee and developed the square-foot measurement standard. The committee, which included builders, architects, lenders, appraisers, estimators, Realtors, and building-code and other government officials, produced a written standard, “Square Footage—Method for Calculating,” which was approved by the American National Standards Institute as ANSI Z765–1966.

The American National Standards Institute (ANSI) acts as both a referee for any organization that wants to form such a standard and as a repository for such standards. ANSI standards cover everything from how to measure square feet in houses to silver levels on photographic film.

Ask if the builders you’re considering use the ANSI standard, and, if not, what method they do use. Then be prepared to wait several days for an answer, as the question will very likely have to be passed back to the firm’s construction personnel.

thebid

When you commission an architect to design a custom-built house for you, how will you arrive at a price? Traditionally, the architect prepares a set of construction documents—drawings and written specifications—and invites builders to bid on the job; this is called a competitive bid. The theory here is that competition among builders for your job will give you the best price. In fact, by the time construction is completed, the cost to build your house may be much higher than the bid price.

Knowing that prices often rise, during construction, many experienced custom-home builders refuse to competitively bid. They know that if they give a realistic price, they won’t be the lowest bidder. What homeowners rarely appreciate, however, is that the builder who doesn’t “low bid” to get the job is acting in the homeowner’s interests as well as the builder’s:

♦  The builder needs to make a decent profit to stay in business and finish your job. Every homeowner’s worst nightmare is the contractor who bids low to get the job and then walks off halfway through because he didn’t have the money to finish it. At that stage, it’s nearly impossible to find someone who will step in and finish; the final price is always a lot higher than the one the homeowner assumed at the outset.

♦  The more adventurous and unusual the architect’s design, the more it becomes a never-before-built prototype, and the more likely that unknowns will crop up. The builder who puts in enough slack to cover those unforeseen but inevitable costs will not likely be the low bidder.

♦  The architect’s carefully prepared construction documents—highly detailed drawings and specifications—that form the basis of competitive bidding can have omissions, which the bidding contractors know will eventually have to be added. If a builder bids low to get the job, he can make up his margin in what’s called change orders. The contractor is supposed to confer with the architect when he spots an omission during the bidding period, but this doesn’t always happen. A change order for an item that was not in the original contract means an additional cost for the homeowners. On the other hand, the conscientious bidder who adds in the omitted items will often lose out to the low bidder. Said one Washington, D.C., builder, “Many times I look at plans to bid and know things are left out. If I’m thorough at bid time, I will lose the job because I put in things that are left out. For example, I see that the specs don’t include enough wiring, and the job will need more amperage. If I put in twelve hundred dollars to heavy it up and the architect doesn’t analyze my bid, the client will pay for change orders later.”

If builders refuse to competitively bid, how do they get jobs? By a negotiated-bid process. The cost to build will be comparable to that of a competitive bid if all the construction documents are complete, but the cost is arrived at quite differently.

Rather than prepare all the architect’s construction documents and then bring in a builder, the builder is selected while the project is still at the initial design stage. The builder works with the owners and the architect to monitor costs and to keep the project within the bounds of the budget. This also avoids added design costs for scaling down and redesigning a project if the bids come in over budget.

Besides the obvious advantages for the builder—he can get the job without spending forty to eighty hours working up a bid that may not be chosen—there are also advantages for the homeowner:

♦  During the design process, owners have access to someone who knows costs almost to the dollar. Architects who specialize in residential construction may have a good sense of cost, but the builder, who is buying materials and building on a daily basis, has constantly updated information. The builder’s input enables owners to know what their aesthetic decisions are costing them, and so helps owners make reasoned choices—for example, should extra dollars be allocated to a more elaborate roofline or fancier kitchen cabinets and appliances?

♦  With every budget, there are choices and ranges of quality for nearly every item. With a negotiated bid, this can be explored. The builder can demonstrate the advantages of using a tradesperson who might be a little more expensive, but the quality of their work is better.

♦  No one can afford everything. With a negotiated bid, the builder can help a client make cost-saving substitutions that won’t affect quality. In a bathroom, for example, high-quality plumbing fixtures can vary tremendously in price.

♦  When the builder works alongside the architect, he can often suggest alternative ways to achieve the same effect that are less costly to construct.

♦  With a negotiated bid, the house will be finished faster. There is no bidding period, which usually takes about four weeks. More important, the builder has already worked the job into his schedule and lined up his subcontractors. “When the design is finished, you can roll right into construction,” noted Potomac, Maryland, builder Guy Semmes.

♦  With a negotiated bid, the builder usually works with an “upset limit” (a fixed price for the job set by the owner) or on a “cost-plus” basis (the cost of the job plus his profit and overhead). With the fixed price, the builder does not keep open books, but delivers the house for the agreed amount. With cost-plus, the books are open and the builder discusses all job costs with the client. The “plus” factor of the “cost-plus”—the profit and overhead figure—can vary depending on the cost of construction and the scope of the work. In the Washington, D.C., area, the range is about 15 to 20 percent for new construction. But this can vary from one region of the country to another.

Despite the benefits that accrue to homeowners who derive a price by a negotiated bid, most do not opt for it because they fear that they will pay too much without the element of competition. If you count yourself among this group, look at several bid sets when you interview each architect. If the one for a $500 thousand house has thirty-eight pages of drawings and fifty pages of written specifications, it’s thorough. There may still be a few omissions, as even the most conscientious architect can overlook something. But with thorough documents, the omissions are likely to be minor. And every job, whether the bid price is negotiated or competitively arrived at, will have a few change orders, because nearly everyone changes their minds and wants something a little different when they see their new house begin to go up.

falseeconomies

If the design of your new custom-built house comes in over budget, you might conclude that you can recover the bottom line if you purchase some of the big-ticket items yourself to avoid paying the builder’s markup. Then you won’t have to make some hard choices and reconsider, for example, those longed-for but pricey skylights that open and close by remote control. But most builders hate it when owners supply materials. Besides the fact that they make less money, such an arrangement creates headaches for all parties, causes delays, and rarely save owners as much money as they assume.

If owners insist on supplying some of the big-ticket items to save a buck, most builders are very reluctant to take on the job. From their perspective, such a cost-cutting tactic reflects a fundamental misunderstanding of what the builder’s markup covers: profit and reward for his efforts and, more critically, his time and overhead to do a very complicated job correctly. The builder orchestrates the construction process. He arranges for the purchase and delivery of several hundred items in a precisely ordered sequence. He schedules thirty or more subcontracting trades to work with the materials as they are delivered, and he supervises the subcontractors to ensure that their work is done correctly. The delivery of each material must be coordinated with many others; it has to arrive at the right time, intact, and with all the required parts so that the subcontractor can do his job. What seems like mere scheduling is a time-consuming process—a contractor can spend half his work day just overseeing delivery of materials.

“Among the general public, construction is perceived to be so simple that anyone can do it. But what I know and offer I didn’t find beneath a rock,” says custom-home builder Frank Fanto of Mendocino, California.

Though purchasing a plumbing fixture or kitchen cabinets seems easy enough, most owners don’t know what needs to be ordered. With plumbing fixtures, for example, they buy the plumbing fixture, but they don’t get the accessory parts needed to install it.

Then the headaches begin. “If a part for something that an owner purchased is missing, who will run out to get it? If the plumber goes to get the part, he will charge for this. If I get it, I won’t get paid for my time—that’s part of what the markup covers,” observed custom builder and remodeler Steve Perlik of Vienna, Virginia.

Even such seemingly straightforward purchases as bathroom tile can become headaches because owners don’t know what trim and accent pieces are required. “It’s time-consuming for an owner. After the second or third trip to the tile guy, owners begin to appreciate the know-how of the general contractor and his network of subcontractors that the markup pays for,” said Silver Spring, Maryland, builder Jim Boyd.

Besides covering the time spent in trips back and forth to suppliers, the builder’s markup provides him with some margin to cover losses when materials are damaged at the job site. “If an owner purchases kitchen cabinets and the builder installs them, what happens if one is dropped and damaged? If I purchased them, my markup can help cover the replacement cost of the one that was damaged. If I drop the owner’s cabinet and have to replace it, I’m even worse off,” Perlik said.

Besides the likelihood of slowing down the job and irritating the builder, clients don’t save as much money as they think they will when they purchase things themselves. As Boyd explains, “The client says, ‘I can get a designer discount.’ But how well is the person connected? The average person doesn’t have access to a professional discount. Besides, the discounts are like used cars—there’s no standard discount. The client won’t get as good a discount as the builder will get unless their uncle owns the store.”

bringing in your own subcontractor

Besides purchasing materials themselves, some owners try to save money by using subcontractors who are friends. For the builder, an owner-supplied sub can be worse than the owner-supplied items. Among other reasons, if the friend is moonlighting, he will do extra work only on the weekends, and this slows down the job.

The friend can also be less competent or experienced than the homeowner realizes. Besides this, Boyd observed that most subs will pick the easiest way to get a job done, and this can make it difficult for the next tradesperson. A homeowner won’t know this, but a general contractor will. “That fifteen-dollar-an-hour electrician roughs in outlet boxes all right, but oftentimes he doesn’t pay that much attention to where he’s putting them. If he places them too close to the doors and windows, the trim carpenter can’t trim, or must cut the trim to fit around the box. Another example, the bathroom cabinets are ordered and installed, but they are too close to the toilet joist and the plumber says, ‘No way I can put the toilet in there!’ ”

Boyd’s advice: At the outset of the job, owners have to accept that “certain things cost. The plumber will get forty to forty-five dollars per hour; the owner pays fifteen percent more for me to get the guy there on time and to do the job right.”

After the job is finished and the house is built, owners may discover yet another reason that purchasing items themselves doesn’t pay in the long run: The builder will warrant and repair items that he purchases, and part of his markup covers his time for this. But if the owner-supplied skylights that are supposed to open and close with a switch won’t work properly, the builder can say with some justification, “That’s not my problem.”

If you are planning to build a Really Big House, make sure you and your pocketbook are ready. You’re not simply transiting from a smaller house to a bigger one. When you move from a 2,500-square-foot house to a 5,000-square-foot one, you’re making a quantum leap in terms of size, finishes, and cost. Your twice-as-big-new house won’t be twice as expensive to build. It will be about four times as expensive.

How can this be? Firstly, the cubic volume of the bigger house will be about 2.5 times more because the rooms won’t look right unless the ceilings are higher—at least nine feet. The vastly increased volume requires a much more sophisticated and expensive heating and cooling system.

With bigger rooms, higher ceilings, and more wall surfaces, you need to increase the scale and the level of the detailing. The single crown molding that enhances the relatively small rooms of a 2,500-square-foot house with 8-foot ceilings will disappear in larger rooms with higher ceilings. You’ll also need more and bigger windows. But to rein in your utility bills, these windows should be argon-filled, with low-emissivity glass.

Then come the inevitable upgrades: better floor finishes, a trophy kitchen and a master bathroom, a state-of-the-art sound system and entertainment center, and anything else that you want—and think you deserve—in the palace of your dreams.

The building cost will also be higher because you will have to hire a custom builder. For a twenty-five-hundred-square-foot house, you would be fine with a production-home builder. But a twice-as-big house requires much more elaborate design and detailing than most production builders can deliver, and none as yet are building houses of this size.

Where do you end up cost-wise? Though rules of thumb can be dangerous, on average the construction cost per square foot of a 5,000-square-foot house is at least twice that of a house half as big. If the current construction cost of a production-built 2,500-square-foot house in your area is about $80 per square foot, it would be at least $160 per square foot for a 5,000-square-foot custom-built house. The total construction cost of the smaller house would be about $200,000; for the large one, about $800,000. (Note that production builders sell the house and the lot as a package; they do not separate out the construction cost unless asked for this information.)

Furthermore, as you get into the planning of your large house, you’re likely to want more elaborate detailing and finishes, at least for some rooms. You’re likely to find that the $160-per-square-foot budget is too modest. If you want to have intricate wood detailing with unusual woods like red birch or walnut, the materials will cost more and require an unusually skilled carpenter. This will drive the cost up closer to $200 per square foot, or a million dollars for a 5,000-square-foot house. You should also note that these costs cover only the house. The land cost would be added to this because custom-home builders do not sell lots, they build on your land.

Even if your budget exceeds a million dollars, be forewarned: It won’t cover everything on your wish list. Chicago architect Philip Hamp, who has designed a number of large houses, observed that “Everybody has a budget. It could be three million or three hundred thousand, but it’s still a budget. The clients have to draw the line somewhere and make some hard decisions.”

When you’re looking for ways to cut your budget, don’t skimp on design costs. With a big house, every design flaw will show. “From the entry foyer, you don’t want the major view through the house to be the seam between the fireplace and the wall, or the first thing that catches a visitor’s eye to be the powder-room door,” observed architect Bill Sutton of Vienna, Virginia.

Would-be owners of large houses also need to think about how they will live in a big house—both their day-to-day living and formal entertaining. In many cases, couples building large houses are empty nesters. “Two people in an eight-thousand-square-foot house can feel cavernous,” Sutton cautioned.

“For the day-to-day aspect, elements like back stairways become important. You can be in the kitchen/family room area and go up to the master bedroom without going through the formal areas that can sometimes feel like museum spaces. For formal entertaining—whether it’s 10 guests for dinner or New Year’s Eve for 150—people always migrate to the kitchen. You have to design it so that it feels right with only household members, a somewhat expanded crowd of ten to twelve, or a much larger number of New Year’s Eve party-goers,” Sutton said.