Many buyers are intimidated by the construction process because there is a concern that there are unknown costs and that these costs can easily get out of hand. Real estate professionals working in the NAIHBR program should be aware of the costs that make up a complete new home price, and be able to walk clients through the different pieces that make up the total cost. These costs fall into 3 categories - the lot cost, hard costs and soft costs.

Lot Cost

The lot cost is very straightforward, it is the cost of the property itself. It may be a vacant lot or have an existing home on it, but the property as it is being conveyed by the seller as-is, is the lot cost.

Hard Costs

Hard costs are the cost for building the home itself. It consists of the “sticks-and-bricks” and entails all the actual material and labor to build the physical home.

Soft Costs

Soft costs consist of an array of additional expenses associated with the build. Many of these costs are specific to the site itself, like the cost to demolish the current home or remove trees that are in the area of construction. Other site specific soft costs include the engineering of the new home on the site and installation of utilities to the new home, like new sewer & water service, gas service and electric service. There are also soft cost expenses that are specific to the type of home being built, and the municipality where it is being constructed. These expenses include the permits, impact fees, bonds, as well as other specific requirements for new home construction that may be required in that particular town. An example of this would be the interior sprinkler systems that a handful of municipalities now require.

There are also soft cost expenses that are specific to the type of home being built, and the municipality where it is being constructed. These expenses include the permits, impact fees, bonds, as well as other specific requirements for new home construction that may be required in that particular town. An example of this would be the interior sprinkler systems that a handful of municipalities now require.

Summary

Coming up with an accurate soft cost number in not an easy process, and typically takes several days for a builder to provide. It requires research, as well as the bids of several subcontractors to help identify these specific costs. NAIHBR provides models and pricing for the hard costs (sticks-and-bricks) and adds them to the lot cost for the property in question. Then, this price is marketed on the MLS with the disclaimer that the soft costs are not included, and an analysis of these costs can be provided by the builder when requested. A buyer or their agent can make this request through NAIHBR, and the results of this request would need to be added to the advertised MLS price for a complete home cost.

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