Cost per square foot: a flawed way to measure value

Bigger house means builder must skimp elsewhere

By Katherine Salant Inman News

When most of us look at a production home builder's furnished model, we ooh and ah about the floor plan (it feels so big and open); the floor finishes (this Brazilian cherry looks almost edible); the beautiful kitchen countertops (my friends will be jealous); room sizes (this bathroom is big enough for 20 of my best friends); and a host of other details.

But in the end, it all comes down to price. We want the most space for the least amount of money because, after all, we're a nation of bargain hunters. We don't determine value on price alone, however. The gold standard for assessing value is the cost per square foot. The builder with the lowest figure is the one who offers the best deal.

Unfortunately, home buyers' insistence on evaluating quality in cost-per-square-foot terms has had consequences that they don't appreciate, said Ron Jones, editor of Green Builder magazine and a custom home builder for more than 25 years. In a recent interview he elaborated on this point at some length.

"Buyers value the dollar per square foot, and the builder responds by delivering as many square feet of conditioned space as possible for $X. If he can deliver 100 more square feet than the competition, most buyers think it's a better value.

"But the problem with this is that the more square feet that are added for a given price, the less concentration of quality per dollar for performance of the house. The quality for finishes, appliances, mechanical systems and the building envelope suffers. If the builder has set the price at $200,000 for example, he will have to dilute the quality.

"Builders concentrate their energy where their buyers will compare -- generally the kitchen, the master bathroom, bedroom count and overall square footage.

"For those things least familiar to consumers, a builder takes the path of least resistance and installs the bare minimum in performance and warranty. For example, he chooses the cheapest appliances and (specifies) an electric water heater over gas because it's less expensive, but it doesn't perform as well and costs more to operate. He (specifies) an electric range because it's less expensive than gas though most people prefer gas. With appliances, the brand is likely to be one the buyer recognizes, but the model the builder provides will be a less-expensive builder grade. With other items, such as windows, a builder will use a no-name brand. If the standard of the home builder industry for a particular item is five years, and it is not a selling point for buyers, there's not much incentive to offer a longer one."

Acknowledging that the cost-per-square-foot figure is the coin of the realm, many home builders highly resent being judged by this criterion, pointing out that value depends on what is in the square foot. If they use higher-quality materials than their competitors, they will have a higher cost per square foot, but they are also selling a better house.

That is exactly the argument made by Allan Washak, a small custom and production builder working in the Washington, D.C., and Baltimore, Md., areas.

"As a small, local builder I can never beat the big national guys on price -- they can buy materials by the trainload and they get a steep discount on everything. My prices are higher but a second or third move-up buyer who has owned several houses recognizes the subtle differences in my houses," Washak said.

Every builder has a great-looking kitchen that he pitches as the homeowner's "silent salesperson" at resale. What's different about Washak's kitchens, he said, are the standard features that his competitors charge extra for. For example, to make life easier for the homeowners, he includes a pullout trash and recyclables drawer and a wall oven that's big enough to hold a Thanksgiving turkey.

Every builder caters to the nearly universal desire of new-home buyers to have a maintenance-free exterior that will require no attention at all. Washak said that most builders in his market offer colonial-styled elevations made of synthetic wood look-alikes -- fiber cement or vinyl siding and trim that's "plastic" (it's actually cellular polyvinyl chloride). The difference with Washak's houses is the roof. He puts 30-year, architectural-style shingles on all of them because they give a roof surface a textured, layered appearance that looks better and lasts longer.

Washak also caters to the small number of buyers who study the building frame and the number of BTUs of energy consumed by the household -- things you can't see in a finished house and most buyers ignore. This buyer is intensely interested in all the energy-saving upgrades that you offer, Washak said. "In a model home park they're the ones who go down to the basement furnace room to check out the exposed framing. I know that when this buyer pokes around my furnace room and sees my tight joist spacing and my stiffer Advantech subflooring, he knows the floors won't bounce and the dishes in the kitchen cabinets won't rattle every time he walks across the floor in the room above. And that buyer at least will come back for a second look."

Eric Doub, a custom home builder in the Boulder, Colo., area, promotes the energy efficiency, durability, healthy indoor air and comfort of his houses. They do cost more than his competitors' houses, but the cost figures that he promotes are not the initial ones. Instead, he targets the monthly charges that accrue once the owners are in the house -- utility bills and mortgage payments. When the utility bills are negligible because the house is extremely energy efficient, the owners can afford a higher mortgage payment. That, in turn, Doub said, makes his energy-saving features an affordable proposition.

Over the course of a year, Doub's homeowners' energy bills are actually a net zero. With Colorado's 300 days of sun every year, his houses run on solar energy. During the daylight hours, solar photovoltaic cells on the roof turn solar energy into electricity. Any excess that is not used by the household is sold to the local utility for the higher daytime rate. At night, when the electricity rates are lower, the owners buy back from the grid. In the course of a year, the dollar amount of the electricity sold and the electricity purchased is roughly equal, or slightly in the owners' favor, Doub said.

To heat the house, Doub uses a combination of solar strategies. The houses are oriented towards the south to capture the free warmth of the winter sun. This is supplemented with heat generated by a solar-heated hot water system that is also on the roof. Some of the heat coming into the house during the day is absorbed by the drywall used for the walls, stone fireplaces, and clay floor tiles. At night, this heat is reradiated back into the space, keeping it warm. The next morning the outside temperature can be in the single digits, Doub said, but inside the thermostat reads 69. The system, given an assist by a very tight building envelope and copious amounts of insulation, can store enough heat to "coast" through two days of cloudy weather without discomfort to the household.

In selecting materials, Doub said that indoor air quality is a critical concern because his houses are so tight that fresh air must be mechanically provided. He avoids anything that can off-gas volatile organic chemicals, commonly known as VOCs.

The energy efficiencies add about 7 percent to 10 percent to the total cost, but the no-VOC materials do not add a significant amount, Doub said.

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