It all started when…

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When you’re building a new custom home, defining a construction budget should be the very first item on your planning checklist. Your construction budget will help clarify the allocation of funds, establish realistic limits, and help you get a better picture of your project.

Knowing your spending limits and developing a custom home building budget will also go a long way towards staying in alignment with your financial goals – and helping you avoid any unpleasant surprises down the road.

Determine cost per square foot

Square foot homebuilding costs are a great place to start when establishing how much you plan on spending on your new home. Talk with your preferred builder to get an idea of cost per square foot range on the type of home you want to build.

Keep in mind, however, that cost per square foot is determined by dividing the total cost of a project by the number of square feet in that project – so many variables (such as additional features or finishes) can skew the figure.

High-performance homes

If you’re interested in building green (and you should be), consider that while a high-performance home typically costs a bit more to build, the advantage is significant long-term energy savings over the life of the home. Not to mention, high-performance homes deliver a greatly improved quality of life (which for many is priceless).

High-performance homes cost remarkably less over time, because their efficiency delivers an extraordinary return on investment. Plus, your family enjoys a home that is beautiful, healthier, more comfortable, and better for the environment.

Identify all individual expenses

Once you’ve determined the type of house you want to build and estimated cost per square foot, it’s important to identify every expense contributing to the construction budget of your custom home.

It’s easy to overlook certain aspects of construction which can add up in overall costs. Be sure to consider all of the following when establishing your budget:

Pre-construction costs

Before you even begin construction on your new custom home, there are some expenses you’ll need to take into account, such as:

  • Land Costs

  • Legal Fees

  • Financing Costs

  • Property Taxes and Insurance

Construction costs

This refers to every physical piece of the project and the labor to place it, including:

  • Breaking Ground: excavation, foundation grading and framing

  • Exterior Structure: windows, roof, stucco, doors, and siding

  • Internal Systems: HVAC, plumbing electrical, insulation, drywall, and millwork

  • Interior Design: paint, tile, cabinets and closets, counters, and flooring

  • Site Improvements: Utilities, hardscape, landscape, fencing, and walls

General conditions

Aside from the costs above, there are other considerations related to the construction of your new home. They are:

  • Project Management

  • Site Supervision

  • Laborers

  • Temporary Utilities, Fence, Trailer, and Construction Supplies

Project costs

Often omitted from cost per square foot estimates, these are the expenses you should be ready for outside of construction:

  • Architectural, Engineering, Testing, and Certifications

  • Interior Design

  • Permits and Fees

Post-construction costs

After construction, it’s important to keep in mind some of the final budget items before you’re able to officially call it home, like:

  • Moving

  • Decorating

At the outset of your project, identify all of your potential costs, obtain appropriate estimates, and assign each a value. Take a comprehensive look at your overall expenses and reprioritize if necessary.

Allow for some wiggle-room

Once you’ve got all the above expenses accounted for, it’s still a good idea to allocate funds to the unknown:

Contingency / splurge costs

During the project, it will be easy to say “while we’re at it, we might as well…” and when you do, you’ll want to have funds at the ready. When planning for details like appliances or finishings, allow for a contingency in the budget for extras – and make preparations for unexpected upgrades to give yourself the high quality you deserve.

The best approach is to start with a higher contingency, say 15% to 20% and then gradually reduce it as you complete each project phase. For instance, when you first start the design, you’ll have a line item in your budget for a 20% contingency. After the drawings are done and the pieces of the project are identified, you might reduce the contingency to 10%. As you go through construction, you’ll be able to reduce the contingency even more so that when construction is complete the contingency is zero.

You don’t have to spend that contingency. If it isn’t used, consider it found money that you can save. That’s a great way to feel good about staying on track and coming in under budget.


If you follow this simple guideline, you’ll be well on your way to building the home of your dreams – without any financial surprises.

Interested in learning more about how Clarum Homes can help take your home construction from start to finish? Click here to learn more about our services, or give us a call at 650.322.7069.