Price per square foot in residential construction

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Housing refers to the stable shelter used for human habitation and is necessary for all human beings. The earliest form of construction codes that specified structural integrity in house building are found in Hammurabi. Also, city planning during the Roman and Greek empires concentrated on placing urban housing from perspectives of water supply and defense, with the same concerns carrying on into the Middle Ages.

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The need to provide adequate housing for everyone emphasizes the importance of construction of these houses. Construction needs professionalism especially with regard to cost estimation. This is particularly important due to the ever-rising cost of building materials and equipment. Professionalism will greatly help a construction firms to save money and avoid the losses incurred due to cost overruns. This paper investigates a very important aspect of mankind, which is housing and the construction field in particular. It examines the overall construction field from pre-development to the actual construction of the building.

Determining price per square foot

Price per square foot of a construction project is determined by finding the entire cost of the project, then dividing it by the number of square feet involved. For instance, a two thousand square feet home that costing $250,000 to build translates to $125 per square foot; $250,000 divided by 2,000 feet. However, when one spends some additional $50,000 on marble tiles in the foyer, an elegant bathroom and a gourmet kitchen, the price per square foot will change. It will now be $300,000 divided by 2,000 feet, which is now $150 per square foot, representing a 20 per cent increase.

However, estimating the cost of a home using the price per square foot has several problems that need to be addressed. First and foremost, different builders will use different materials to build, making one cost calculation method very different from the other. Moreover, other factors may also come in and change this price completely. For instance, one builder may prefer a kitchen with oak cabinets and flat panel doors while another may opt for white kitchen carpets with vinyl wrapped doors.

Even builders constructing similar houses and consistent in their measurement method will have differing notions of square feet. Many buyers think that this notion actually refers to the amount of usable space, while many builders do their calculations basing on the entire area the building occupies; this can make a big difference. Another limitation of calculating using the price per square foot method is that two builders may actually not compute the square feet in a similar way when they calculate the total construction price (Levy, 2006).

Cost calculation conventions greatly differ from one region to another and from a builder to another. Some builders only consider what can be walked on and exclude closets and but walk-ins. Others do their calculation by counting two storey spaces twice since the whole volume is finished space that requires cooling and heating. To make it even worse for the eventual home owners, appraisers and realtors usually use different square foot calculations from builders. The principal distinctions they use here are whether the building is above grade or below grade, and whether it is finished or unfinished. A finished area refers to an enclosed area suitable for use all year round; and its calculations include both the exterior and interior walls, while an unfinished area includes unfinished basements and garages (Ventolo and Williams, 2001).

Wood is generally cheaper than concrete and would be the preferred choice of construction material for many builders. However, wood has numerous shortcomings, such as durability, strength, and can easily be attacked by termites. Consequently, wood is used together with concrete to come up with relatively cheaper constructions that do not have many of the shortcomings associated with wood (Civitello et al, 2007).

A high-rise refers to a tall building whose structure is built from steel and reinforced concrete. These buildings are capable of housing numerous tenants and establishments due to their ample space. The price per square feet of these buildings is considerably lower due to economies of scale and the small ground space they occupy compared to the lower-rise buildings (Aoyama, 2001).

On the other hand, mid-rise buildings are usually not as tall as the high-rise ones, but can also accommodate a substantial number of people. Their price-per-square-foot, even though not as low as the high-rise ones, is much lower compared to the low-rise ones. This is especially the case when a number of them are built in a particular location to house many people.

Garden style apartments are units in low-price apartment complexes including substantial amounts of landscaped and open ground. Garden style apartments place a lot of emphasis on aesthetics, thereby raising their price per square foot.  Podium wrap apartments are usually low-rise houses that are mainly used as luxury centers, with many of them being hotels and condominiums. These have the highest price per square foot, since a lot of emphasis is placed on their aesthetic value and not just their functional value.

 GMP of construction

GMP in building and construction stands for Guaranteed Maximum Price, also referred to as Not-To-Exceed-Price, NTX or NTE. This is a cost-type contract where the contractor takes full responsibility in case of cost overruns. The contractor receives full compensation for actual costs incurred and an additional fixed fee depending on the ceiling price, unless the GMP was increased through an official order change. In this case, any cost under-runs must be taken back to the owner, making it different from fixed-price contracts where the contractor keeps any cost savings increasing their profits. GMP therefore means that the construction team must be very keen in estimating the cost of building to avoid any undesired overruns and under-runs, which could be very costly to a construction firm (Ventolo and Williams, 2001).

Estimating department

An estimating department of a construction company usually is the backbone of the company because without their knowledge, the company will lose money by going over budget. The estimating department normally uses a computer-implemented method to estimate the price per square foot value of a building. The computer system first retrieves the comparable properties with similar attributes, and each with its value. The attributes may include distance from the living area and the particular property as well as the selling price. Then the system rates the distance of the properties from the particular area and indicates tolerable and desirable deviations from the ideal with the building. Every evaluation ends up generating a weighted preference that is very important in the estimation. Next follows the aggregation of the sale price and the distance from every comparable property into a dollar-per-square-foot estimate of the building.

The cost of construction materials has been sky-rocketing over the years, especially the recent past. Just three years ago, the prices of these materials were significantly lower and now nothing can be built for the price of what was built then. This has been mainly attributed to the booming construction industry, thereby raising demand for these materials. Moreover, the increasing demand for housing has attracted many investors into this industry, thereby putting a strain on the available resources in the construction industry (DeGoff and Friedman, 1985).


The construction field requires professionalism, especially during the pre-development stages. The pre-development of the building is very important because that is what determines if the building is worth building for the amount of money per square foot. Proper cost estimation will save construction companies a great deal of money and save them the agony of cost overruns. The builders must carefully select the building materials that suit their purpose bearing in mind their ever-escalating cost. Therefore, for efficient construction, the builders must always bear in mind the price-per square foot of the building and ensure it is within the desired limits.


Aoyama, H (2001) Design of Modern Highrise Reinforced Concrete Structures, World Scientific

Civitello, A et al (2007) Construction Operations Manual of Policies and Procedures, McGraw-Hill Professional

DeGoff, R and Friedman, H (1985) Construction Management: Basic Principles for Architects, Engineers, and Owners, Wiley

Levy, S (2006) Project Management in Construction, McGraw-Hill Professional

Ventolo, W and Williams, M (2001) Fundamentals of Real Estate Appraisal, Dearborn Real Estate


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Price per square foot in residential construction. (2016, Aug 25). Retrieved from

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