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New home builder proft margin?

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  • Jan 10th, 2007 11:32 am
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Dec 23, 2004
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New home builder proft margin?

Just curious as to how much home builders make per house, say a 2000 sq ft house selling for $450,000 (market rate), how much of that would you say a builder makes as net profit? .... I'm thinking around 10% but not sure. Any accountants out there who have a clue?. Just want to settle this debate with my friend.
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Jun 14, 2003
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sucka wrote:
Jan 8th, 2007 12:08 am
Just curious as to how much home builders make per house, say a 2000 sq ft house selling for $450,000 (market rate), how much of that would you say a builder makes as net profit? .... I'm thinking around 10% but not sure. Any accountants out there who have a clue?. Just want to settle this debate with my friend.
It all depends on the cost which is all different among builders. A builder may have bought a piece of land years ago and another one may have bought that recently. One builder may use good quality building material while another one may use less good.
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Mar 21, 2006
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From what I have read, builders who do assembly line production (which is most), around 10 to 15%. They work more on volume. Short term investment, 1 to 2 years, for a 10% return is pretty good.

For custom builders, it could go either way, usually higher. I've seen a number of bizarre things done in terms of upgrade costs for these. Most recently was the $900 vacpan for a kitchen..
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Jan 16, 2003
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BuildingHomes wrote:
Jan 8th, 2007 12:54 pm
From what I have read, builders who do assembly line production (which is most), around 10 to 15%. They work more on volume. Short term investment, 1 to 2 years, for a 10% return is pretty good.
If it's only 10 - 15%, what explains the big price increase we've seen in the past ~6 years? The house prices have almost doubled during that time. I spoke to a plumber who was doing my house and he said that during that time his salary did not go up much so the cost of trades must not have gone up that much. Lumber / copper / others have gone up, but I'm sure that doesn't represent a 100k increase on each house. Land? It might have gone up, but all that land was bought years ago by developers... I'm thinking that the developers are pocketing a lot more than 10 - 15%...
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Nov 13, 2005
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BuildingHomes wrote:
Jan 8th, 2007 12:54 pm
. I've seen a number of bizarre things done in terms of upgrade costs for these. Most recently was the $900 vacpan for a kitchen..
Wow, there must have been some gold in the construction of that vacpan. Last time I checked (about 2 months ago) they were going for $35!!!!!! :-0 :-0 :-0

sk
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Jun 9, 2003
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also because of labour shortages, wages have gone up quite significantly over the past 10 yrs
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I had actually talked with my builder (the owner of the company) and he claimed he makes atleast $50,000 on each house (these are 500k-650k homes here) before upgrades. He noted that on any upgrades, he would make atleast 35% profit on them.
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Mar 21, 2006
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There is a lot of things that go into building a home that many people may not see.

The builder does have to put up all the money to pay the trades and such before they get your money.

So if a house lists for $300K including GST, that would be $282000. If 15% of that is profit ($42300), that leaves $239700 that the builder would have to put up in gradual amounts from the time production starts to the day your house closes and money is transferred.

Of that the land would have to be paid for immediately, and that is usually purchased long before a concept is developed, lots are divided, models are designed, and a sales office built.

Then they have to build the house.. I'd say the average is about 1 year from signed purchase agreement to closing.

Then post closing there is the nightmares of after sales service and fixing everything that may have been screwed up or not noticed during the construction phase. This can cost a lot in money and reputation.

And there is soooo much paperwork that goes back and forth between municipalities, developers, home builders, home owners, insurance companies, investors, utilities, trades and suppliers that if you stacked it all up for 1 home it would probably be a foot thick, so you need office staff to coordinate and manage all of that.. and that is overhead.

This is one reason why many of the assembly line builders (those who build 150+ houses per sub) will offer less selections for upgrades. They can only handle so many suppliers and trades at a time and handling anymore would add to the overhead.


As yes, new home prices have gone up, but so has labour, materials, and demand for everything.. Want a good job? Become a _skilled_ trade. You will probably have work for life and your trade is portable to wherever you go in the country (providing you meet local licensing requirements)

There are lots of bad trades out there. Finding the skilled ones is hard because they are always busy.
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May 13, 2006
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I saw it somewhere where it was broken down.

Land - $40k
Fees - $35k
House - $130k
Admin - $20k
Profit - $30k
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Aug 15, 2003
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I'm pretty close with the super intendant in charge of building my house. He told me there making 25% profit. Any upgrades are 100% profit.
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Mar 21, 2006
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The site super isn't usually the accountant. They will see all the POs for materials, but they don't see all the other bills for actually running the operation.

Upgrades vary per builder.
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DSTU wrote:
Jan 9th, 2007 9:38 am
I saw it somewhere where it was broken down.

Land - $40k
Fees - $35k
House - $130k
Admin - $20k
Profit - $30k
Where can you get a lot for $40k in a major city? Even some small towns have lots that cost over $40k now. Some of the lots in the nicer parts of my city are approaching $1,000,000/acre, so $40k will buy just enough space to put a shed on.

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