How to Estimate Construction Costs for a New Home

Have contractors separate material and labor costs in their estimates.
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Estimating construction costs for your dream home can be tricky. The best strategy is to obtain separate quotes from a number of reputable contractors and compare them for the best deal. Keep in mind that estimates are just that — actual costs are subject to change. Typically, construction costs can be broken down into materials, labor and permitting. If you don't have blueprints, you'll need to hire a draftsman so that home dimensions can be used in the estimating process.

Estimating Cost of Materials

Most estimates include both materials and labor for each feature of the house. For example, in 2011, the average cost of framing a 2,300-square-foot house was around $25,000, according to the National Association of Home Builders. But this amount includes what the contractor paid for material, labor and any subcontracting work related to framing. To find the cost of raw materials, take your house specifications to a building supply store and get a quote on each specific item. For framing and trusses, use your square footage to determine how much lumber you'll need. Repeat this process for roofing, windows, flooring, counter tops, drywall, and insulation. Develop a comprehensive, itemized list of material costs.

Estimating Labor Costs

Labor costs fluctuate by location, contractor and subcontractor. Costs for subcontractors, in particular, depend on whether you use trade union workers or not. In the bid process, direct the general contractors to itemize estimated labor costs separately from material costs. Have them specify which subcontractors they would use and the going rate for those subcontractors, as well as their own labor costs. All general contractors need to make a profit, but by comparing labor costs from multiple quotes, you'll be able to tell if someone is charging too high a premium for their work. According to the website of industry author Carl Heldmann, labor costs typically account for 25 percent of a total home construction budget.

Permitting and Other Fees

Permitting fees vary by state and county. When building a new home, you'll have to pay for a building permit. In 2011, the average cost of building permit fees was $3,100. Construction within a township or city requires water and sewer hook-up fees as well as inspections for a certificate of occupancy. Well and septic systems require permits and inspections when building in a rural area. As a rule of thumb, permits make up about 5 percent of your total budget.

Calculating Per-Square-Foot Cost

When all costs are totaled, including materials, labor, permitting and miscellaneous costs, divide the sum by the square footage of the house. This will provide your cost per square foot. For example, if the total estimate is $200,000 for a 1,900-square-foot house, your cost per square foot would be roughly $105. Use this formula for competing estimates in order to compare pricing. You can also break down each part of the estimate, such as labor or materials, in these terms. According to Heldmann, the current cost to build a new home is $80-$120 per square foot, depending on size, design, quality and location.