Friday, July 29, 2016

The Cost of Building a New Modular Home

The National Association of Home Builder’s 2015 survey of building costs tries to put a percentage of each stage of constructing a new home. It is very impressive and I have to believe quite accurate.

But do these numbers reflect the cost of building a modular home? The answer is yes.

Even though a lot of the work to produce the home part of the entire project is built somewhere off site and shipped in, the costs are the same. Remember, this is a percentage report and not a dollar one.

Modular does have a huge freight cost and crane charges incurred with each house but these costs find their way into site built homes as well. If one were to add up all the costs in time, material and labor for trips back and forth to the job by site builders, we would probably find they are about the same as the added modular delivery and set charges.

Here is a list of the results from the NAHB survey.
  • The average size of the home was 2,802 square feet
  • The average lot size was 20,129 square feet, about half an acre
  • The average lot cost was $4.20 a square foot
  • The average price of the new single family home was $468,318
  • The average construction cost of a single family home was $289,415
  • The cost of construction rose from $80 per square foot in 2011 to $95 per square foot in 2013 to $103 per square foot in 2015
  • The total construction cost of a new home accounted for 61.8% of the sale price. The finished lot accounted for 18.2%
  • Builder profits were 9.0%
  • Overhead and general expenses, which were at an all-time low of 4.13% in 2013, rebounded to a more historically typical 5.6%
  • The share of construction costs going to excavation, foundation, concrete, retaining walls and backfill jumped to 11.3%
  • Of the eight major stages of construction, interior finishes 29.6% accounted for the largest share of construction costs, followed by framing at 18%, exterior finishes at 15%, major system rough-ins at 13.1%, final steps at 6.8% and other costs at 0.5%

Making this work for a modular home builder requires you to break your costs down, assign a percentage to each of the eight major steps and then plug in where these costs occur, at the factory or at the job site.

This requires at least 6 completed homes over the past year to have any chance of being accurate. And it’s only accurate for your business.


Unknown said...

Realtors make 6% selling a house with no risk or time involved. Building a new home at 9% is just plain stupid. For a custom builder building two or three houses a year maybe in this economy you might as well be a assistant manager in a Walmart. A builder needs to be at 18% to 25 percent net. If they have no employees and use subcontractors. I do no care if people have their American dream while they cost me mine.

Making slaves out of the building contractors because our nation is iconically upside down in many ways.

I will not build a home at 9%. Might as well sit on my butt and bea Realtor.

Unknown said...

I will not build houses at 9%.might as well bea Realtor sit on my butt and get 6%.i am not going to sacrifice my American dream so everyone else can have theirs. Plus enslaving me. That is bull!

Unknown said...

Typed this on my tablet just look past the errors. Builder management books for a builder exam in nc and vanilla tell you 9% is at least half the net profit margins needed to stay in business. What a crock.

builder Bob said...


Don't shoot Coach, he is just the messenger.

I also agree that 9% is too low but I really need to know how you can get a 'net' profit of 18-25%. Is your gross profit in the 33-40% range?

Is that the profit you build into every home and how do you get it from your customers?

If that is truly your net profit, using the average sale price of a new home in the US, that would mean that you have a gross profit of over $100,000 per house. I find that hard to believe.

Anonymous said...

The 9% figure is not explained as either gross or net profit. I would think that any builder would love to have a 9% profit after all expenses.

josh margulies said...

I think Anonymous is correct, Mike, 9% is a good net profit but that is assuming you have been paying yourself and are ascribing a chunk of the house revenue to general operating costs.