Cost Categories

What Are House Area Costs?

In a previous post, we discussed the site improvement costs that would include grading, underground utilities, and street improvements.  But some other site work is not usually included in these site cost estimates because they go beyond the finished lot and are meant to be excluded from the land transaction negotiations.  This other site work would include the flatwork (driveways, sidewalks, patios), lot fences, and yard drains.

Homebuilders will often refer to the house costs as “directs” or the direct construction.  The cost items would include everything from the foundation, framing, plumbing, electrical, drywall, and through a completed finished house.  And the homebuilder will exclude the flatwork, fences, and drains from these direct construction costs and maybe prefer to categorize as also being in the site development costs.

But as noted yesterday, the negotiation during the land transaction will focus on the costs in getting to a finished lot – graded pads with all utilities and streets installed.  The negotiations will exclude this additional site work.  As a result, I have seen homebuilders create another cost bucket referred to as house area costs so that the site development costs and directs do not get contaminated.

A couple of items do get included in the site development costs.  This would include the driveway approaches and the perimeter walls.  But all other flatwork and fencing on the lot would be in these house area costs.

If you have any comments or questions, please feel free to share with us below.

John Kaye has over 30 years experience within the land development and homebuilding industries, having held senior management positions with The Irvine Company, Koll Real Estate Group, and Brookfield Homes. As a developer, John has overseen the land acquisition, entitlements, and development of master planned communities, residential tracts, urban infill sites, and land assemblages. His experience and skill sets include land acquisition, land brokerage, project management, market analysis, finance, and strategic planning.

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