New home price markup?

Question

My wife and I are looking into purchasing a new home but we wanted to know the average markup. We live in central Teaxas if that makes a difference. I have been told that the avg mark up is appx 40-70%. Is this true.......BTW I love yahoo answers..............! Thanx in advance for the help........

Answer 1

The National Association of Home Builders tracks this type of information, and it is not generally available to the public. Margins will be much higher for high end custom homes than they will for subdivision tract homes.

The gross margin on the average subdivision home is 21%. If your house costs you $100,000, the builder will have spent $79,000 for materials and labor (otherwise known as direct costs). Indirect costs like office expenses, advertising, management salaries, etc. (the list is endless) are paid out of the gross margin. If the builder has met his budgets, the average net profit before taxes is 8%. That money is used to grow the business, pay dividends to stockholders, and pay income taxes (either corporate or personal depending on the structure of the business). Because of the fierce competition, small builders work on the same margins. In the final anylasis, if the builder can bank 3% of the sales price as retained earnings, he is very happy.

High end custom home builders operate at a gross margin of 33% or higher. High end consumers are very demanding and are usually willing to spend whatever it takes to get what they want.

I hope this information helps. My best advice to you is to choose your builder very carefully. I don't think there is any substitute for talking to others who have had homes built by your builder of choice. They will usually be very candid about their experiences.

Good luck with your new home.

Answer 2

I had a house built in Illinois and for what I got I couldn't have bought in this area for the same money.....check into having one built for you. If you do decide to build be sure to get at least 3 bids from different contractors because the price varies considerable. Good Luck.