The building costs experienced by large builders is in no way comparable to what the ordinary public pays.
Yes, $159k for a 3,500 sq ft home is $45.43 per square foot, assuming the land is thrown in for free. Builders will quote you $115 per square foot, or even $325 in some areas, to do the same.
When I've posted here the price Pardee Homes pays to build homes, self-appointed experts have claimed I'm mistaken - just look in an appraisal cost book, they say. I'm not mistaken.
Take an expensive location like San Diego and a pleasant 2,300 sq.ft. Pardee home selling for $1.4 million:
_Building cost is $135k or $58.70 per sq.ft. because this is the top of the line model;
_Lot cost is $210k because Pardee bought the land a long time ago, and the;
_Gross profit margin is 75%.
Compare that with an individual builder with a pleasant 2,300 sq.ft. home selling for $1.4 million:
_Building cost is $690k or $300 per sq.ft. because this is the top of the line model;
_Lot cost is $650k because the builder bought recently, and the;
_Gross profit margin is 4%.
During a downturn, if Pardee chooses to accept the 4% profit margin of the small builder, Pardee can sell the $1.4 million dollar home for $410k.
Like that air-pocket Pulte Homes introduced in Las Vegas two years ago when they lowered the price on their homes by 25%? Previous buyers were outraged and shocked, but not in a position to do anything about it other than continue paying their mortgage on-time.
Its possible that Centex may be down to a 4% margin in the particular area you mention to clear out their product. DR Horton was doing that a few years ago on some Houston projects I saw.
How can large builder's costs be so much lower?
_Major, major price concessions by vendors who make everything which goes into the house and everything used to design and manufacture it due to volume;
_Employees on a salary with a long-term contract moving from site to site;
_The same home assembly everywhere - I'm sure you've seen the television programs where homes are built in one day after the foundation has set.
_Large portions of the home, involving detailed assembly, are often built in factories and often by machines, and trucked to the site on a truck with a built in derrick.
_Efficiency of operation through-out.
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