How Much Profit Does a Home Builder In Seattle Make?
The typical new home in the Seattle area takes upwards of 3 years or more to go from parcel to finished lot to finished house and requires, by some counts, 400 or more people to be completed.
To understand how a builder, who is at the heart of the process, makes money, it helps to know that that builder is responsible to direct all aspects of the process and manage all the various components, contributors, regulators, suppliers, consultants, staff, sub-contractors and, ultimately, the buyer. The builder is paid last and only after everyone else in the chain is paid-satisfied. The escrow doesn’t close, and the net check delivered to the builder, until all outside parties are given their share.
Take a representative sample new home in the Seattle area;
Sales priced at $750,000 / 3,200 Square Feet / Medium-High Finish Specifications.
Overall costs to build from inception (applicable sales taxes and interest included) –
- $ 229,930 per Lot – Acquisition & Development (20+ contributors / consultants – including Land, Infrastructure, Fees, Consultants, Taxes…)
- $ 59,655 per Finished Lot – Pre-construction & Indirect Costs (10+ consultants – includes Architecture, Design, Permits, Fees, Commissions…)
- $362,915 Direct Construction Costs (60+ vendors, suppliers and sub-contractors):
$36,290 Foundation Phase (8 vendors – Grading, Foundation, Utilities…)
$ 108,875 Exterior Shell (14 vendors – Framing, Windows, Doors, Roof, Siding…)
$ 137,900 Systems & Carpentry (20 vendors – Plumbing, Heating, Electrical, Drywall…)
$ 36,300 Surfaces & Fixtures (10 vendors – Counters, Fixtures, Appliances…)
$ 43,550 Completion Phase (8 vendors – Landscape, Fencing, Cleaning…)
- $ 39,675 Overheads & Administration
What remains is the builder profit, 7.7 percent of the total = $ 57,825.
This analysis is far from perfect and has assumptions that can vary widely between builders but will provide a basic understanding of the cost / profit dynamic in the sub-urban Seattle area.
Nationally, and over a period of the last 10 years, home builders have made between 7 and 12% on average, with the median return being something close to 9%. In Seattle, with available land constrained and at a premium, and the market not yet back to equilibrium, the return is slightly dampened but improving.
Another look at the financials of house construction can be seen at the National Association of Home Builders (NAHB) website by Housing Economics.com – Cost of Constructing a Home. This is a national average breakdown resulting from their most recent survey, but will offer another angle on the subject of How Much Profit Does a Home Builder Make.
A visit to Newhomelink.com shows the top 20 builders in the Seattle area are currently building over 100 new neighborhoods. The median price of the homes in this group is $477,570 compared to the national average of $399,530. Local builders will have varying profit margins depending on size, scale and home type, but will generally fall within the margins discussed herein. In the local example above, builder profits are a lower percentage than the national average (7.7% v 9.3%) but a higher whole dollar amount per home ($57,825 v $37,255).
Have additional Questions or Comments? Please feel free to contact Steven Jewett directly at Newhomelink