cost of lot as % of total cost

djcompAugust 8, 2014

My wife and I are very interested in building our next home, so I have been fortunate enough to come across this forum on GW. It is not only interesting reading but we have found it to be a fantastic resource as we really begin this process. I finally joined and thought I would try my hand at being a participating member initially with a question: if buying a lot to build on, what have you found to be the lot cost as a % of a completed home building project? I have seen some estimates of approximately 20-25%. From any of your experiences, does this seem to hold true? Thank you in advance!

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Ours was 20% for what its worth. Ours was acreage but its not buildable/subdividable due to an area moratorium.

    Bookmark   August 8, 2014 at 4:44PM
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Interesting...mine was about 20% as well.

    Bookmark   August 8, 2014 at 5:16PM
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Interesting...mine was about 20% as well.

    Bookmark   August 8, 2014 at 5:17PM
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We are desperately trying to keep it over 50%. Our land was really expensive, due to its location.

    Bookmark   August 8, 2014 at 5:58PM
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When we were working with our buyers agent, he presented the equation from the other direction: When buying a house, the value of the house should be 2/3rds of the total, and the land should be worth 1/3rd.

You wouldn't/shouldn't buy a $100k home on a $500k lot, likewise you wouldn't/shouldn't buy a $1M home on a $100k lot.

So whatever you pay for the land, you should expect to pay twice more for the home.

    Bookmark   August 8, 2014 at 7:05PM
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djcomp, I'm not sure that there is any standard or dependable ratio for the cost of land, as a part of a custom home project. For example, "improved" property (with utilities, access, drainage, etc. is far more expensive than unimproved property where it's up to the property owner for all needed improvements.

Accordingly, land costs, site improvements and house construction costs vary widely across the U.S. and Canada (I'm assuming you're in one or the other country). Added to these costs are "soft" costs which include financing, permits and approvals, testing, professional fees, furnishings, landscaping, contingencies, yada yada.

Thus, I've found the best approach is to begin an investigation and evaluation in your chosen area of all of these individual expenses, and calculate the total to see if it matches your budget.

Using percentages and square foot expenses is just misleading and not dependable. You have to figure out each individual expense and add for a total! Sorry, there's no shortcut for doing one's due diligence.

Working with an experienced design professional and with a builder experienced in your desired area will be a big help.

Good luck with your project!

    Bookmark   August 8, 2014 at 7:13PM
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The cost of our 3-1/2 acre lot was equal to approximately 15% of our total house cost.

    Bookmark   August 8, 2014 at 9:04PM
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Our lot is a little over an acre and it's just under 4 percent of the total house cost. I do feel like we got a phenomenal deal on the lot, though.

    Bookmark   August 8, 2014 at 10:27PM
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Well, we're building just north of NYC, and I certainly WISH our land were 20% of our estimated total budget. If it were, though, we'd be building a house with a budget of about $3 million. So much of the land value boils down to where you build, and the relative scarcity of available lots.

That having been said, I don't think you can really carve a budget up that way in most cases. It's probably smartest in the long run to look at the total picture - can you afford to build the house you want on the land you're considering? Will the house you want fit into the neighborhood surrounding the lot without being either the biggest or the smallest house around? Without locking in to any specific design, and just considering meta-issues like square footage, would the kind of house you're considering look right where you want to put it?

Since we were kind of locked into the land portion of our situation due to a family agreement, we had to "back in" to our construction budget. We looked at our available funds, subtracted the cost of the land from the top, and saved until we were in a position to build the kind of house we wanted. I imagine anyone could look at the going rate on lots for sale in any area and do something similar, though. It took a long time to save up the cash, but we're finally there, and it'll be nice to work on building what we want without too many enormous compromises.

    Bookmark   August 9, 2014 at 12:01AM
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Our 2.5 acre lot is about 15% of the total cost.

    Bookmark   August 9, 2014 at 12:10AM
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I agree that it will vary by location. In town, out of town, by area, state, and regionally. Our lot is small, just over a third of an acre, but it is in a creekside location in town, walking distance to restaurants, shopping, etc. and near the base of the ski area. We planning that the price we paid for the lot will be about 25% of the total cost to build a fairly large (multigenerational) house with primarily mid grade finishes.

On the other hand, if we had instead bought a 1/2 acre lot in a subdivision about 25 miles away, and built the same house, the land cost would probably be less than 5% of the total. Or we could have bought a five acre lot in a nice area about 7-8 miles form town and the lot cost would probably be around 20 percent of the total for the same house.

I've read that lenders have certain rules of thumb on how much of the value of the lot they will consider in making a construction loan, but I don't know for sure and since construction loans are usually local, that probably varies as well.

    Bookmark   August 9, 2014 at 1:06AM
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The 30 wooded acres we built on last year was about 10% of the total cost.

    Bookmark   August 9, 2014 at 6:59AM
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Jack Mason

Close to beach property, Florida Gulf Coast. Lot was approximately 30% of project cost. We changed our initial design and increased our square footage from 2200 to 3200.

We needed the additional square feet and the prime location supported a high square foot appraised value.

    Bookmark   August 9, 2014 at 7:38AM
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I'll be the voice of dissent: Our 45-acre land in an excellent location is worth far more than the house we'll build upon it; however, this is not typical at all. Also, we don't have a neighborhood; thus, no need to fit into the right price range.

    Bookmark   August 9, 2014 at 9:25AM
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I don't think there can be a standard.

The lot my house is on would be worth essentially the same amount of money empty as it is with the current house on it because it's an urban lot.

To Build on this lot now, the house would have to sell for about three times what mine was bought for, if you were a developer, and if you were an individual homeowner about the lowest you could hope for was 50/50

    Bookmark   August 9, 2014 at 11:57AM
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Our 10.5 acres was 27% of total cost.

    Bookmark   August 11, 2014 at 1:34PM
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