The question: “How much does it cost to build a custom home in Colorado Springs?” is by far the most common question potential clients ask me. Over the past several years, it’s a question I’ve had trouble answering – to say that the markets for materials and labor were volatile would possibly be one of the biggest understatements in the history of the world.
COVID wreaked havoc on supply chains and labor. A LOT of money was injected into the national and global economy. PPP loans, millions of people working from home, labor shortages, the list goes on – it was a very difficult time to accurately identify the cost of our product, given a sales cycle that averages well over a year. Normal supply and demand forces were thrown totally out of whack.
Has The COVID Pandemic’s Impact On Building Costs Finally Calmed Down?
As we’re squarely into 2023, there is some good news: we’re finally seeing a reasonable degree of stabilization. The cost of lumber, which at one point was completely out of control and was making the national news on a regular basis, is now stable. Other previously volatile products like drywall, insulation, millwork, and concrete have stabilized, at least to a point. That does not mean that the pricing has returned to pre-COVID levels; to the contrary, while our pricing is overall stable now, it’s all a good bit higher, and in some cases a LOT higher. Currently, our biggest culprits are HVAC and plumbing materials; swing by Home Depot and pick up a piece of PVC pipe or a 6” duct if you don’t know what I’m talking about.
Historically, Paramount Homes has always been a fixed-price building contractor; I firmly believe that a fixed-price contract with a well-written scope of work is a much better value to the customer than a cost-plus contract, and aligns the objectives of both the builder and the customer far better. Nevertheless, between 2021 and 2022, despite our best efforts, we were forced to transition to a cost-plus contract model due to the massive instability in the market.
Enter 2023, with relatively stable costs, and we’re once again able to offer a fixed-price contract, which we’re very excited about. So, now that the dust has (mostly) settled from the chaos that was COVID, that leaves people wondering: “where are we at, exactly?”
What Does It Cost To Build A Home In The Colorado Springs Area Now?
For a home that’s roughly 4,000 square feet and larger, which is typical of our average build, you can figure the build contract will be around $250/square foot, which, works out to right around $1,000,000.
There’s an economy of scale with a home around that size or larger; there’s typically a bit more inexpensive square footage to a larger home; bigger bedrooms, rec rooms, bonus rooms, and so forth. You also have the costs of the garage, decks, and patios, which do not calculate into your square footage, which being divided into a larger number, will, of course, lower your overall cost per square foot. So, for a home that’s less than 4,000 square feet, you can expect an additional $10 – $50 per square foot, due to the diseconomy of scale, depending upon the square footage of the home.
Don’t Forget The Cost Of Land, & Water/Sewer (Or Well/Septic)
So you can count on spending a million dollars to build a custom home, right? Unfortunately, there’s more; in addition to the $250/square foot build contract, you’ll need to add in the cost of land, and you need to factor in the cost of water and wastewater.
Lots in the Pikes Peak area currently range from $100K to $350K, but you have to understand that a lot at $100K will almost certainly have additional costs due to either the small size, the steepness, the difficulty of building on it, and sometimes, the expansive soils requiring an over-dig.
On average, you can expect a well and septic system to run around $50K, combined. Tap fees if you’re on municipal water and sewer will typically range between $20K and $35K, depending on the location of the lot.
A Million Dollars Just Ain’t What It Used To Be
So, with all those numbers, am I saying that a new 4,000-square-foot custom home in Colorado Springs on a 2.5-acre lot will cost nearly $1.3MM? In general, yes.
There are, of course, a million assumptions that I’m making when ballparking at $250/square foot, but I have found that in our current market, it’s definitely a realistic and appropriate jumping-off point for engaging the conversation with a prospective client about a project.
I know these numbers might come as a shock to some folks; it was only in 2017 that I was using $120/square foot as a starting point for budgeting. No, that’s not a typo; that is an increase of 108% —more than double in just five years.
The Bottom Line On Square Foot Pricing
This is the new reality of Front Range home pricing, and in general home pricing across the country; prices have spiked up significantly, and I don’t expect them to move down very much. Just for fun, I did some research on housing sales in El Paso County for the beginning of this year. I found some slightly conflicting data, but it was close enough to where I’m comfortable taking the average and incorporating it here.
For 2023, to date, I found that the average sold home’s price was between $200 and $215 per square foot; that’s up from $140/SF just a few years ago.
Comparing production homes built en masse and one-of-a-kind custom homes is not a true apples-to-apples analysis, and keep in mind that a vast majority of these homes sold were built on lots that are less than 10,000 square feet, and have minimal front, side, and rear setbacks, whereas almost all of the custom homes we build are on acreage. As we’ve always said, the single biggest difference in BUDGETING a production home vs. a custom home is in the cost/ size of the lot you’re building on.
Even with all of that, our $250/square foot cost to build a custom home is really not that far off the average sold price of around $215/square foot. A good chunk of that differential is in the lot; with that premium price for a custom lot, you’re getting the space from your neighbors, and the unique lot characteristics that you don’t get with a production lot. Overall, I feel very good about our pricing; we are competitive in the local market and are still able to bring significant value to our clients.
What If You Build A Smaller Home, Or Build On A Smaller Lot?
While I’ve stated that the average 4,000-square-foot home we build is probably going to end up costing around $1.3MM after factoring in the cost of the land, the next question is: “Can you build anything less for a million? What about a home smaller than 4,000 square feet?” As I’ve mentioned, the per-square-foot cost goes up as the size of the home goes down (due to a diseconomy of scale), the answer is a very elusive “it depends.”
Depending upon the size of the home, the features and finishes of the home, the specifics of the lot, and a handful of other variables, the answer is YES, we can build a beautiful custom home for less than a million. It’s not an everyday occurrence, but it is possible.
We are MORE THAN HAPPY to discuss with you those possibilities; we very much have a “can do” attitude and strive to meet our clients’ needs if at all possible. We’ve built several homes that are 2,000 square feet, or less, without skimping on quality or finishes. If you’re shooting for a build closer to 3,000 SF, you would want to adjust your budget to closer to $275/SF, or around $825,000, plus land costs and water/ wastewater.
Will Building Costs Go Down Anytime Soon?
I’m not an economist, but as someone who has spent 30-plus years in the construction industry (in the single-family market), my answer to this is a solid “no.” This is what I see – multi-family projects ( i.e. apartments and condos ) in Colorado Springs are booming, so there’s still significant demand for materials and labor outside the single-family market.
There has been a brief pause on demand over the last 6 months or so as interest rates have caused a bit of uncertainty in the market, but the overall demand is still there; people want to live along the Front Range, and Colorado Springs offers all the elements folks are looking for – good jobs, good schools, and a good lifestyle. Add to that the fact that Colorado Springs still offers significantly less costly housing than similar areas to the north – Douglas County, Denver, Boulder, etc.
While most of our local production builders had hit the brakes on all new starts roughly six months ago, and have ridden out the winter with little activity, by all accounts, they are gearing up for what I would describe as a “moderate year” for 2023. These production builders are certainly not sitting on their hands for 2023; demand is still reasonably strong in our area, and with interest rates appearing to stabilize, they’re going to meet that demand.
The other factor I expect to see is a very limited supply of existing homes; sellers are very relunctant to lose their historically good rates that they secured a few years ago, with rates ranging from 2.5% to 3.5%.
As the saying goes, “The best time to plant a tree was twenty years ago. The second best time is now.” I believe the same is true for building a home. Thankfully, prices have stabilized, but I do not see any indication of a significant reduction in prices on the horizon.
Thank you for reading, and please do not hesitate to reach out to us if we can be of any assistance to you; we’re here to help.
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Mike Rice is a custom home builder in Colorado Springs, Colorado. As the president of Paramount Homes, he has over 30 years of experience in construction. Originally from California, he moved to Colorado with his wife and three sons to seek out the natural beauty and high quality of life we enjoy here. Mike is licensed as a builder in El Paso, Teller, and Douglas Counties and would love to build your dream home. Contact him today at (719) 331-4116 to learn more.