How much will my property project cost? The RedBook Guide on the right questions to ask

—14th May 2018

When you launch a property project you want the answer to one question above all: how much will it cost me?

When you launch a property project you want the answer to one question above all: how much will it cost me?

It is hard to get clear answers from anyone.

This guide is designed to give you hard information on costs, and ways to avoid expensive mistakes.

There can be good reasons why costs change before builders start work on a project, or during a project, so it is important to anticipate the reasons as far as possible and ask the right questions before you start.

So how much will it cost to refurbish my house or build a new one?

This is rather like asking how much a suit or a dress will cost a dressmaker or tailor to make. It depends what kind of suit or dress: the better the fabric, the more expensive the garment. But there are some great rules of thumb when it comes to the cost of building.

The very cheapest house—for example, the kind of house put up in large numbers on big new housing estates by a builder such as Barratt Homes—will cost around £125+ per square foot. This is as basic as it gets in terms of cost and quality.

So, to build a small house like this of 2,000 sq ft in size will cost £250,000 for the materials and labour.

At the other end of the scale, a house faced with good stone and designed as a one-off by a leading architect can cost £600 or more per square foot to build.

Here is a guide to the range of costs per square foot for building a new house or an extension:

Cheapest:   £125
Low:   £200 – £250
Medium:   £300 – £350
High quality and typical London:   £400 – £450
Super-high:   £600+

These are rough figures. The actual cost of a project becomes clearer at certain key stages as the project goes along.

If you are refurbishing an old house, especially a listed house, it can be particularly hard to estimate the cost of building works accurately at the outset: the tired fabric of old houses often conceals problems that are only revealed once work on the property has begun.

Whatever the type of project, as soon as an architect creates a detailed design for a new house or an alteration, a specialist known as a ‘quantity surveyor’ is usually hired to make a detailed estimate based on actual figures for labour and materials. At this early stage, the design can be tweaked by the architect to reduce the cost. Then, the quantity surveyor analyses the new design to check how much the cost has been reduced. So at this early stage, you can control cost.

Next, when firms of builders are invited to bid for the building work, they will calculate carefully what the job will cost them to complete—with their profit margin included. Their bids are likely to vary in size. You can chose the cheapest or the most expensive, or one in between, keeping in mind other factors such as the builders’ reputation and the quality of their past projects. Again, you can control cost.

Building projects are notorious for cost overruns. But you can reduce this risk greatly by making sure you don’t change your mind about the design once builders have started work on site. This takes discipline and forethought. In this way, you can control cost once more.

Watch out—VAT and fees!

When you hear an architect or another property professional use ‘cost per square foot’ to give you an estimate of cost, they often forget to mention two extra elements that add greatly to the expense. These are professional fees (for architects and other specialists), and the cost of VAT.

VAT usually adds 20% to the cost per square foot, and professional fees can add another 20% or more.

VAT may seem obvious but it is surprising how often it is omitted in the ballpark figures that are thrown around at the start of a project, and property owners then omit to build it into their budget.

So, the very cheapest kind of small house that was quoted as costing £250,000 to build actually costs £350,000 once these two extras are included.

The good news is that there are ways to minimise or avoid VAT on some building projects. For instance, if you knock down an existing house and build a new one from scratch you should pay no VAT. The VAT bill can also be greatly reduced if the house has been uninhabited for a long period, and for other reasons.

Here is another common pitfall. Cost per square foot quoted by architects also excludes the cost of decorating and furnishing a house. So the very cheapest small house that supposedly cost £250,000 to build will in the end cost £350,000 plus a further £50,000 or so once it has curtains, carpets and furniture and is ready to live in.

If your house is in the country, remember to factor in additional amounts for improving the infrastructure—a new entrance to the property perhaps, landscaping around the house, or maybe just cabling for internet access for example.

 

Our tips to avoid cost overruns

Allow time to get the design you really want

Creating the designs for a new home or extension is the most exciting part of a project. Enjoy this stage and try to avoid hurrying it. If you are confident the design is right, you are less likely to want to change anything as the project goes on and add to the overall cost.

Design freeze

Before the builders start work, lock down every element of the design and agree with yourself and your team that you are not going to change it. This is known as a ‘design freeze’: it requires discipline. But budget overruns—and delays—happen whenever clients change their minds during the building phase.

Choose firms used to dealing with budgets at your level

It is tempting to think of architects or interior designers—or builders—as being cheap or expensive on the basis of their fees or the cost they quote for completing the project. What will make a greater difference in the end to the cost of your project is the materials and quality of labour they specify to fit your taste, or they are familiar with. So ensure your chosen partners are experienced at working on projects like yours with budgets like yours.

Start sooner rather than later

The annual rate of inflation on building costs is around 4%. So a house that cost £1 million to build last year would cost an additional £80,000 by this time next year. The sooner you start your project the less likely you are to have to pay extra to cover inflation.

Summary

Make sure to get a clear estimate of costs, including all professional fees and VAT with no hidden extras, at the outset of your project. This is best done by asking a quantity surveyor (also known as a cost consultant) to analyse the cost of creating your architect’s designs.

Remember to factor in the cost of decoration and furnishings on top of the cost of building.

Don’t hurry the design phase. It pays to take your time to get the design just right, and it is a hugely exciting stage.

RedBook is a specialist consultancy that helps client and their advisers select the perfect creative and technical team for significant property projects.

For further information, please contact us on 0207 060 6222. Or email: enquiries@redbookagency.com