Here at Starr® Custom Homes (SCH), a question we get a ‘lot’ (no pun intended!) is how much should a client spend on the property on which they would like to build their custom home. This is a great question and one the client should get an answer to before they purchase any property.
The worst scenario, and one we’ve encountered a number of times with prospective clients, is overspending on the lot as a proportion of total budget, leaving the client without enough funds to build the home. “Clients often don’t realize that, as with anything custom, the price of a custom-designed and built home is going to be higher than a production home they may commonly see,” said SCH president Shawn Starr. “We’ve had a number of inquiries where the client had a healthy overall budget, but then spent too much on the lot without researching how much the house may cost, leaving them without the funds to build what they wanted on the property they now own.”
The National Association of Homebuilders (NAHB) conducts cost surveys on a regular basis. According to the NAHB, the average cost of a lot across all builders (production and custom) in 2017 (the most recent year available) was 21.5% of the total budget. “This number has remained steady over the years,” said Starr. “As a result, we advise clients to target 20 – 25% of their budget for their property and 75% – 80% for their home.”
This lot cost target is for most typical properties. Waterfront lots or lots in specific high-demand locations will naturally skew the percentage higher due to the higher inherent value of those properties. “For example,” said Starr, “lots at the Jacksonville beaches skew higher in value the closer you get to the ocean, and particularly if you’re east of 3rd Street, even if you’re not oceanfront. These lots would exceed the 25% formula due to their location. Riverfront and other waterfront property will be similar.”
We highly recommend that prospective clients conduct some research on lot costs vs home costs in advance of their buying decision so that they can make a strong, educated decision about how to proceed. Starr® Custom Homes is happy to help – contact us today to get started.