Updated 9-25-2020 (note there have been recent huge increases in lumber products that have impacted the construction of homes).
There are many types of costs for building construction. Some people might try to say that there are only two: SFR (Single Family Residential) and Commercial. However, that would not be correct. Because, construction costs vary according to complexity, so, construction costs should really vary by the main types of construction complexity.
Costs are all over the board for the various types of construction. Means cost estimating guide and Dodge Reports has tried to get it right for decades. But they can be wrong (sometimes significantly), due to localized situations and special features of any given project, (especially in high-end resort type locations) which cannot be contained with any tables for generic projects. For instance, cost estimating resources like this are usually very wrong (as in too low) regarding the specialized world of custom house costs.
But the fact is: estimating construction costs is very difficult to do. Even very large, capable firms get it wrong, all the time. The only entity that really should be telling people how much something will cost exactly are the people who are going to build it, in other words, the Contractors. Architects really should in no way guarantee their clients that what they are designing for them will be built for any specific construction cost. That act is fraught with an unimaginable amount of liability. So don’t be surprised if your architect refuses to quote any particular guess as to what your project might end up costing you to build. There are too many variables and even professional cost estimating companies (which your architect is not) get it wrong. Architects may have an idea of the Range of Construction Cost, but should not document such a historic or regional rule of thumb to an owner as to what their project will actually cost. Things change and the cost of a building or home can change overnight based on the price of gasoline, environmental disasters and whether or not the Contractor has certain economic needs. There are factors that no architect can know or allow for in any guesstimate.
And there is one very certain thing about costs: the owners will never believe that their projects are going to cost what they will, until they finally sign a contract with a builder. Until then, owners have a type of psychology that doesn’t seem to allow them to realize the true cost. This is a real phenomenon. Ask any architect or any builder. Therefore: understand that when applying architectural percentage fees, architects should be doing that based on their better knowledge of construction costs (which will be higher) than the owner’s much lower imagination of costs. In other words, strictly for the architect to have an understanding of what their fees in round numbers should be, they can conduct their own internal guesstimate of what they believe the actual cost of construction might be, on a rule of thumb cost per square foot basis.
With that understanding, let’s examine one type of project:
SFR (Single Family Residential) construction costs (for Custom homes (of the sort designed by an Architect for a particular client), not tract housing).
And how that impacts the architect’s fees.
Nearly all owners planning on building a custom house today imagine that they are going to build it for $100/HSF. Unfortunately, that’s not going to happen. Why? Because that may be what tract housing costs in years gone by in certain locations very close to metro services and supplies. Today’s tract housing is closer to $200/HSF. And you don’t get the features of a Custom Luxury house for the price of a budget Tract house.
For custom-built homes, builders have to earn a living to feed their families. And because owners having an architect design a custom house for them have certain elevated expectations in terms of size, materials, features and quality. When you combine these factors, it adds up to usually more than TRIPLE an owner’s initial desired construction cost guess. In other words, $300+/HSF (for a heavily value engineered design with mainly painted drywall, very little stone and only engineered wood plank flooring, very simple roof, very economical exterior siding, painted cabinets, low end granite, budget trim (inside and outside), and with the owner (such as a Architect) being on site every day, running things and pinching pennies. Not many owners can afford the time to do such a thing, nor have the knowledge and skills to pull that off). So the reality is more like $345/HSF for a value-engineered solution, with the Contractor doing everything, instead of the knowledgeable homeowner. And it can be $400/HSF, $500+/HSF and more, depending on location, topography, geology, desired features, materials, size, etc. Owners often say things like: “Well, I’ve got to have such and so,” as if there is no cost associated with those items. Guess again. Contractors do not give anything away. The owner will most certainly be charged for their desires, plus overhead and profit.
If you are an owner, that’s the reality today. Can it be less expensive where you live? Sure. But if you live in the USA, the main reason for lower costs is due to reductions in quality and complexity, rather than location. Manufacturers know what each other charges, so that defines the global (or at least North American) marketplace and what any of us is going to pay for materials. Can a builder who is hungry construct it for less? Sure, but not that much less. Why? Because if he loses money, he can’t feed his family and he still has to pay for the materials and his subcontractors.
So: get used to the idea that you are going to be paying from $300 to $400 to $500+/HSF for your new custom home (approximate average, but it can be more, based on your particular desires and demands). Once you do that, things are going to run much more smoothly. These numbers are as of mid-year 2018. However, it can be more, if you compel your architect to make things overly complex. Homes can cost up to $1,000/HSF for timber frame ski lodges on mountain slopes in high-end Colorado resorts. It can happen if you go overboard. If owners can afford that, fine, otherwise, owners need to allow their architects some degree of design control to help them tame budgets (which will still always be more than clients want to pay to build it).
Does this mean that you can’t build a tract house for say, $275/HSF? Yes you can. But it can’t possibly have all the features and quality materials in a custom home costing $345 to $400/HSF. In “tract” housing, expect all-carpet, all-white painted drywall and cheap flat hollow-core doors, particle board cabinets, 30″ white appliances, and small and fewer windows and doors. Less insulation. Budget roof shingles. Vinyl siding. No porches. No garage. And no timber frame or post and beam. Many people don’t even understand the concept of “TRACT” and call it “track.” No. TRACT means: large tracts of homes built simultaneously, using identical materials, purchased by the railroad boxcar load at a discount. No customization. Except for “add a door here,” “remove a door there.”
The main point is: when trying to estimate architectural fees, you need to be using the most realistic numbers (i.e.: higher) for CUSTOM LUXURY homes. Architect typically are not designing a budget “tract” house for their custom clients. Ask your Architect. Listen to them.
So how does this cost of construction impact the architect’s fee? Simple: it is widely understood that the more a building or home project costs = there is more work involved in both designing and building it. Especially when the cost/HSF increases. Why: because there is more to design and build.
Commercial Costs of construction.
This is the real wild card. It really depends. Laboratories can be incredibly expensive and large metal buildings very cheap. More on this later.