How to Estimate New Home Construction Cost?

Wow! I am glad that you are constructing a new house in the US. Have you done homework for its architect and structural drawings? How much budget will you invest in your project? 

Oh! Are you working on these steps? That’s great. You must invest time in your new house construction budget estimation. After all, it will determine the successful execution of your construction. 

Do you know you are starting your project in the appropriate year (2024)? COVID-19 caused many issues in the US construction industry. But in 2024, things are coming back to their primary positions. 

This year, you will see only a 3-6% rise in construction material rates. Do you know it was 10–20% in 2022 and 2023? Well, we are lucky at that. 

We were discussing the new house construction cost estimates. Right? Do you know how to estimate new home construction costs? Don’t worry if you don’t! This blog post hits the same topic. Let’s start it together!

Need to Estimate New Home Construction Costs

Before jumping into the pool of this blog, we must comprehend the benefits of construction estimates for a house construction project. The cost estimates let you

• Control project budget 
• Reduce cost 
• Avoid budget overruns 
• Perfect time management 
• Error-free construction 
• Excite construction confidently 
• Increase profit margins 
• Higher bid-win rate

Types Of Construction Estimates Experts Use

Estimators mostly use the top 5 estimating methods to calculate a new house construction cost. Let’s discuss them in detail below!

1. Preliminary Cost Estimates

It is another name for abstract cost estimates, budget estimates, or approximate estimates. As the name shows, estimators use this method in the pre-stages of estimation when construction drawings are not completed. 

Contractors and clients determine rough estimates through this method and comprehend if the project is financially feasible or not. In other words, the estimating method helps you detect if you can afford the targeted construction or not. Besides, you can get an idea about the project duration by determining preliminary estimates. 

How can you calculate preliminary estimates for a new house construction project?

You can calculate preliminary estimates for a new house construction project by considering a previous similar project with similar details. 

For Example

If you have an estimated report of a new house construction project having the same dimensions and other requirements in your history, you can get the current project cost from it. 

Note: Remember, it will be rough estimates. You will need to hire estimators for detailed estimating services before starting your new house construction. 

2. Detailed Budget Estimates 

As the name shows, estimators provide detailed budget estimates for a new house construction project using this method. They split the construction into small components and calculated the cost of each, including labor, equipment, and building materials. 

Using these estimates, you can calculate the project’s total budget by adding all smaller expenses. Unlike preliminary estimates, complete construction drawings are required for detailed estimates. 

This method helps you identify how much labor, materials, and equipment you will require for a new house construction project. 

Example

If you need estimates for a landscaping project, you will consider the following takeoffs and their costs in your estimates:

• Mulch
• Gravel
• Drainage & Subdrainage
• Tiles
• Shrubs
• Reservoirs and ponds
• Boulders
• System of insulated pipes
• Pavers made of brick
• Erosion prevention
• Pavers made of stone
• Seed
• Concrete pavers
• Specialty sport terrain
• Gates and fences
• Grass
• Turf irrigation

3. Quantity Cost Estimates

Again the concept is hidden under the term. Quantity cost estimates reflect the number of units or how much work is required to be done on the construction site. 

Like detailed estimates, professionals divide the construction activities into smaller elements, depending upon the quantifiable components and their cost. At the end of the assessment, all the expenses are added to get the project’s total cost. 

Remember to follow the table to count requirements for different undertakings. 

Example

Suppose you are doing brick wall construction. You will measure the dimensions and count the materials and labor needs accordingly. Simply put, your focus should be on quantities only; nothing else. 

For brick wall construction, your takeoffs will include: 

• Mortar mix
• Lime
• Concrete blocks
• Gravel
• Masonry ties
• Damp-proof course (DPC) material
• Insulation
• Scaffolding materials
• Wire mesh
• Joint filler
• Primer or sealant
• Bricks
• Cement
• Sand
• Water
• Steel rods

4. Bid Cost Estimates

What is a bid? Do you know about it? 

As a contractor, it is a piece of paper containing estimates you submit to your potential client to get the project. 

It is a type of estimate in which estimators consider subcontractors, permits, overheads, contingencies, and profit margins. But why are these factors essential to consider in bid estimates? 

Actually, contractors use this paper as a contract. Both parties sign it before executing construction. Therefore, it is essential to factor in all side expenses in bid estimates. 

Tip: Use estimation software to calculate markup and other expenses involved in new house construction. 

5. Control Cost Estimates

What do contractors want other than a controlled budget? Actually nothing. Unfortunately, it is challenging and complex. You must have detailed control cost estimates to accomplish this goal. 

This type of estimate is a mixture of three:

1. Financing budget estimates 
2. Building costs before construction but after contracting
3. During the house construction cost 

The considerations help estimators and contractors monitor expenses and implement changes accordingly. read more

Basic Components to Consider in Construction Cost Estimates

As you have done with the types of estimates you can use for a new house construction project,. Next, we will explore what components one must consider when estimating a construction project budget. 

• Diverse Estimating Methods

Firstly, we have many estimating techniques to calculate the project budget. Experts always consider the scope and requirements of a particular house construction to implement the most suitable estimating method. It actually determines the precision and accuracy level of construction estimates. 

The two common methods that are used for this purpose include: 

1. Bottom-up Estimation 
2. Top-down Estimation 
   

• Accuracy & Precision

The second point that ensures the quality of estimates and that estimators always considers: Precision and Accuracy. 

Suppose you need 30 pieces of wood for some construction. But you ordered 20 due to inaccurate measurements. What would be the after-effects? You will have to order 10 more pieces to meet your requirements, and it will directly shake your project budget. You will experience delays. 

Similar will be the situation if you order 40 pieces rather than 30. In this situation, your time and budget requirements will increase due to the addition of waste management factors. 

Well, to keep checking the accuracy of estimates, professionals consider the following techniques: 

1. Definitive Estimates 
2. Preliminary Estimates 
3. Magnitude Estimates 
4. Feasibility Estimates

• Data Sources for New Home Construction Cost Estimates 

Lastly, you need to utilize 3 authentic data sources for new home construction cost estimates. 

1. Parametric Estimates 
2. Expert Judgments
3. Analogous Estimates

Methods to Estimate New Home Construction Cost

Above, we only mentioned the names of the methods. It is time to thoroughly explore them and comprehend the best one for your new house construction project. 

• Historical Construction Estimation 

Estimators consider the data of an old project similar to the targeted one and calculate estimates required for the current construction. Yes, it is somehow similar to the preliminary estimates concept we have discussed above. 

Well, there is always a need to update assessments in this method. You can modify the estimates according to the inflation and current material prices. 

• Parametric Home Building Estimation 

Yes, it is an integral part of data sources. The method involves simple calculations for project cost estimation. The sources you can use for this estimation include: 

1. The contractor’s historical data 
2. Standard pricing from 3rd party

• Expert Judgment Estimates

You can use this method when you don’t want to engage an estimator for detailed construction estimating services. The expert will share his opinion according to your project desires, which you can use in your new house construction. He can give you an idea about the following factors: 

1. Time required for the project 
2. Materials requirement 
3. The most suitable construction materials 
4. Labor requirements 
5. Rough construction project budget

• Analogous Estimates

Estimators use analogous estimates to reflect the project’s total cost and duration required for it. They use historical data to calculate analogous construction estimates. The method is perfect for planning the construction without the risk of budget and time overruns. 

Remember, the method is only applicable where the client lacks the initial data required for the new house construction. 

• Plinth Area Cost Estimation

It is similar to that of the parametric estimating method. It also depends on the standard rates. The point where both take different paths is the area dimension. Estimators consider the external dimensions of the total building area in the plinth area cost estimation method. 

The formula to calculate this cost: 

New house construction cost = Plinth area x Standard rate of construction 

• Bottom-Up Estimation

It is like a detailed cost estimate. In this method, estimators start with the individual expenses and end up adding them all together to get the new house construction project budget. It is actually the most accurate method of estimation. 

• Top-Down Estimation

This method is the reverse of the bottom-up technique. In this method, estimators start from a total budget of $308,588 (a new house construction cost in the US as of 2023 data) and then divide it according to construction activities, including roofing, flooring, painting, etc. 

This method restricts the client to a fixed budget. But, it is also suitable for those who have a fixed budget for a particular construction project. 

• Three-Point Estimation

As the name shows, estimators determine the cost of the project considering three scenarios: optimistic, expected, and pessimistic. 

But how can you go with three estimates? It is impossible, indeed. 

Don’t worry! Follow the below formula to get the average value. 

Three-point estimates average = Optimistic + Expected + Pessimistic / 3

• Equipment Estimation

A house construction project always involves some furnishing and installations. Right? When you reach this point, you must consider the equipment estimation method to calculate its budget. 

The formula to calculate this cost is: 

Equipment cost = Cost of equipment x Installation factor

Installation factor → Required materials, Labor, and Subcontractor expenses.

Methods to Estimate New Home Construction Budget Depending On Measuring Units

When you deal with a house construction project, you must understand the following estimating methods when the measuring unit game gets ON. It is essential to ensure the 100% accuracy of estimates. 

1. Unit Pricing Method 

It is the most common method that estimators and contractors use for accurate estimation. They split the project into units (square feet) and then assign the accurate cost to each unit.

Where Can You Use the Square Foot Method?

• Flooring 
• Drywall 
• Painting 
• Framing 

Method to Create Unit Price Estimates

• Consider the similar job you have done in the past. Let’s consider it a painting. 
• Then create a takeoff sheet and determine all the materials requirements for the painting project. Takeoffs you must consider in this example include:

• Calculate the labor cost by considering the total labor hours required and the per-hour labor rate.
• Next, calculate the budget required for equipment and tools. Also, consider overhead expenses and contingencies.
• Ultimately, calculate the expense per square foot, considering the tidal area underpainting.

Once you have this as a sample, next time you only need to implement the following formula to calculate unit price cost: 

= Total square footage x Price per square foot

2. The Square Foot Method

Have you noticed we used the word SQUARE FEET in the unit pricing method? It is so because the square foot method is similar to that of the first one. 

The only factor that differs between them is specific activity and whole construction consideration. In the unit pricing method, we dealt with single units. Right? But here, we will calculate the budget considering the complete area under construction. 

Method to Implement Square Foot Method for a New Home Construction

• Consider the total budget of recent projects you worked on. 
• Calculate per square foot budget using the following formula: 

= Total construction expense / Square footage of home

Let’s see an example of it. This is updated according to 2024 estimates.

The formula to estimate a new project budget is: 

= Home’s square footage x average cost per square foot 

For example

Data

Home’s square footage = 2,600 sq. ft

Average cost per square foot = $124.16 per sq. ft

Calculation

Total house construction cost = 2600 x 124.16 = $322,816

3. Rule Of The Two Method

If you are dealing with common jobs and need prompt estimates, the rule of the two methods is best for you. It is a quick method that can eliminate the headache while equipping contractors with estimates without getting into a detailed estimating hustle.

Example

If you have a total budget of $50,000 for construction. According to the rule of the two methods, $25,000 will go for materials expenses, and the remaining $25,000 will be covered in labor costs. Simply put, it is a 50/50 percent scenario. 

It means that if you know the cost of one, you can calculate the expense of the other easily. 

What to Consider for a New House Construction Cost Estimation?

1. Pre-construction Budget Estimates

Preconstruction expenses are essential to calculate when you are going to start a new house construction project. Around 10-15% of the project’s total budget goes to grounding and related activities. 

As a contractor, you must consider the following factors in this phase of construction: 

• House architect 
• Initial cost estimates 
• Land acquisition and preparation expenses 
• Permit acquisition

Now, see the below table for budget highlights!

2. Construction Cost

Now, it is time to calculate the new house construction cost without considering finishes and interior design. Here, you can implement the rule of the two methods to calculate the cost of different construction activities. 

See the table below to check the expenses for building activities!

3. Interior Finishing Cost

House construction is incomplete without interior finishes. The cost for this construction phase can range between $44,000 to $165,000. However, the exact budget depends on your choice and taste. 

Let’s explore the below to see detailed interior finishes expenses!

Calculate & Write a New House Construction Estimate- Step-by-Step Guide

The above information was quite essential before starting the focussed topic of this blog post. Let’s see how to calculate and write a new house construction estimate!

• Review The Project Scope 

Can you reach your destination without knowing the way? No. 

The same is the case when you deal with a house construction project. Contractors must analyze the project scope before moving toward the house construction phase. 

It is essential because most clients don’t know their plans well. They just have a rough idea they give, and the next is on contractors. Therefore, understanding the construction project scope is mandatory. 

Question You Must Ask Your Client For Project Scope Analysis

• How can we help you?
• What services do you not want to equip?
• How much time do you have for a house construction project?
• How do you see your project shortly?
• Do you need detailed cost estimates?
• Do you want estimates for each item involved in your construction? 

You may not get all the answers to these questions, but still, you can identify what your client’s expectations are. 

So you must start estimation with a detailed project analysis as a contractor or subcontractor. It will make your clients trust your services and ensure you both are on the same page. 

• Determine the House Construction Duration

Estimation always includes the duration required for the project completion. It seems it does not have any involvement in construction costs. But, estimators use this factor to calculate labor costs according to their required working hours. 

Furthermore, project duration identification eliminates the chances of conflicts between contractor and client. 

During timeline assessment, you must consider the factors that can cause delays during construction, such as heavy rain, material shortages, etc. 

• Calculate Subcontractors Cost 

If you are a single contractor dealing with a complete house construction project, you will need assistance from subcontractors, such as electrical, plumbing, roofing, flooring, painting, or landscaping subcontractors. 

Be realistic in doing so because your little mistake can destroy the quality of the whole project. 

So, determine the subcontractor’s needs and estimate their budget accurately. Hiring subcontractors will help you complete your project on time. There will be no chances of errors and delays when you engage professional contractors in your construction game. 

• Estimate Material Expenses

Now, shift your attention to the material cost. First, make a detailed takeoff sheet and identify the cost of each material. Keep adding the values to the estimating sheet. 

Align all the matters, including materials quality, reasonable pricing, updated rates, and cash flow. The assessment will help you to manage the funding accordingly. 

At the end, add some percentage to cover overhead and contingency expenses. Then sum up all the costs to get the project’s total budget!

Tips to Estimate a New House Construction Budget

Calculating a new house construction project budget is challenging for every contractor. It demands time and energy for accurate calculations. Even a little mistake can cause project failure. Therefore, you must consider the following tips to keep things on track. 

• Consider a Suitable Floor Plan 

Estimation always starts from grounding or flooring. Therefore, you must consider a suitable floor plan to get accurate budgeting figures. 

Why do you need to consider a floor plan?

• Provides project blueprints 
• Outlines the scope and uniqueness 
• Supports in highlighting potential risks 
• Promotes communication between different construction teams

Tip: Use a concrete floor plan. It eliminates the chances of mid-construction changes, removing requirements for budget additions. 

• Determine Cost Per Square Foot 

Provide your clients with cost-per-square-foot construction plans! It can set a platform to build realistic expectations. The benefits of this strategy include: 

1. You can compare different designs and materials 
2. It enables you to make informed decisions in a timely. 
3. You can align your budget and expectations efficiently. 
4. It helps to provide a budget plan even in the initial stages of construction. 

• Separate Percentage for Overhead Expenses

Never consider overhead expenses a side factor! It must be highly focussed in your estimating report. Considering this factor allows you to deal with unforeseen construction expenses wisely. 

How much should you consider for overheads?

Consider 10-20% of the new house construction project’s total budget for overheads. 

• Eliminate Budget Overruns Chances

Pre-plan things to avoid budget overruns during the construction phase! You can accomplish this goal using the following strategies: 

1. Do detailed project planning 
2. Work with clear and transparent documentation 
3. Regularly monitor expenses and update data 
4. Promote clear communication with clients and team members

• Benefit From Construction Estimating Software 

Integrate software technology into your estimating process! It can make you enjoy different perks. 

• Automate estimates 
• Immediate feedback 
• Add accuracy in estimates 
• Increase customer satisfaction 
• Efficient proposal

Final Words

So, estimating a new house construction is time-consuming. It needs expertise and industry knowledge to accomplish tasks efficiently. You can calculate the house construction cost using the steps mentioned in this blog. 

But if you are unable to do so due to lack of time or any other reason, you must hire estimators for this job. They will equip you with accurate estimates that you can use to execute your new house construction project brilliantly.

Want to know: How to Estimate Materials for Construction?