You need to build with local comps in mind or you're going to lose money. The banks I've seen will finance 80%-95% of the appraised value (loan to value) so you'll have to come up with the rest plus whatever percentage of down payment you can shoulder. If you have some deep pockets and can get it financed, you're already in the hole with the value of the house. If there's even an inkling of a thought that this isn't your "forever home", you're going to lose money. If you plan on dying in this house, then you can left your heirs worry about it, since it will be a windfall for them anyways.

That's where my head is at too! It would be different if we were retirement age, and knew for certain this was the last stop, but we are in our 40's.

Is the builder local to your area? If so, why is he so high and out of range pricewise for the area? If he's not local, you may have issues finding local subs... or his subs that aren't local may charge premium prices for having to travel.

Our builder is local to our area (rural), but builds a lot of large lake homes about an hour away (we toured a 12,000+ square foot home he built a few years ago). The first time he priced for us, he was at $150/square foot (very high for my area). About $25-35/square foot more than most local builders. We had to talk to him and let him know that we don't want all the features that come with $150/square foot - we just want a solid, well-built home that will age well. We are working on bids with him now, and expect to come in close to $115/square foot.

So, maybe sit down with the builder and really explain your cost expectations and what you want in the house. Maybe that will get you closer to a reasonable price/cost for your area.

I am curious, is this a situation where there are other custom homes in your area that cost in the $165/ft range to build, but the owners haven't attempted to re-sell them yet so the comps aren't for the same caliber of house?

Or would your house at $165/ft be the nicest house in the area and priced above all of the custom, semi-custom, and tract houses?

I am curious because in my area the former is the case. There are several neighborhoods with custom homes and people continue to build nice custom homes. But, other than a few foreclosures/distressed sales, nobody has tried to sell one of these homes in many years (well before housing crisis). So, the only "comps" in the area are the tract house neighborhoods for newer construction or much older homes.

I get some comfort by the fact that people continue to build and spend $$ on custom homes in my area, but do have similar concerns as you about re-sale and wonder if the others who have built/are building share those concerns or simply don't realize that their house isn't worth what they think it is in the eyes of a realtor or an appraiser.

There are whole swaths of the country where building a home is more like buying a new car; more of an expense than it is an investment. It's hard to justify borrowing money under these circumstances.

The builder lives local, but does most of his building about an hour away, near Charlotte and the lake. Those areas can justify the price tag, but my town has been on an economic decline since the 1980's. Looking at the comps from the most premier neighborhood (where we planned to build), the highest comp from the past year is $136 sqft - and that listing was an outlier compared to most, which sold for around $114-120.

Currently, the local market has nothing at $165. The highest is $150 and that house has been listed for YEARS!

What would I do? I would buy a lot in a neighborhood or area where property values are increasing and build the house there.

Are you looking at building a smaller home? (I'm sure you realize this, but the cost per square foot thing can get wonky if you are building a smaller home - one "good" kitchen can drive your costs into the stratosphere anyway - so the cost/sq. foot approach is going to make a 1400 square foot new-build home with a "good" kitchen look way more out of line than that same good kitchen in a 3000 square foot home....)

I hope that makes sense?

We are looking to be at about 3000 sqft.

Ah. Well there goes that idea! ;)

Jennifer, I'm in central NC. Our county is rural; our builder is in the next county over (Davidson) which is rural. He built tons of houses at the nearby lakes. We just had to be up front and honest with him and let him know that we aren't looking to build a Uwharrie Point quality home. Maybe you need to do that with yours.

If you're comparing the price of resale homes in your area with the cost of new construction, you're making an "apples-to-oranges" comparison. It shouldn't be a major revelation that it costs more to build new than it does to buy resale product.

In our area, there are two types of appraisals: a cost-to-construct appraisal and an appraisal based on "market-comparable sales." In my experience, cost-to-construct appraisals are typically within 1-2% of the contract price to build the home. By contrast, an appraisal based on "market comparable sales" can be as much as 20% lower. There are a couple of reasons for the difference: 1.) contract prices to construct new custom homes are generally not recorded, so appraisers don't have access to relevant price data, and 2.) Resale homes are viewed by appraisers as pretty equivalent to new custom homes (appraisers tend to dumb everything down to no. of bedrooms, no. of bathrooms and total sq. ft. of conditioned living area. Underwriters like it that way, too,) and 3.) the sale prices of "distressed" sales are included in the set of "market comparables."

P.S. Cost-per-square foot is a terrible metric because it is affected by so many variables. It is, however, a simple metric and the math is easy enough for Realtors and Appraisers to do so it is commonly used. Be careful.

There's an old saw that goes Location, Location, Location. If your area is depressed and not appreciating, and with no reason to appreciate in the next 5-10 years, I would seriously consider passing on building (or even possibly buying) where you are unless you're planning on making it your forever home. What is the point of throwing money into a place that will not at least hold its value?

Cost per sq ft metric is indeed AWFUL. Way to many variables. Riddle me this, do you go shopping for your new cars based on cost per pound? You need to pick your home and the identify every possible detail, everything and create an accurate spread sheet. Exactly what I did and it's very very long and identifies every detail in every room, it took months to complete. Once you are done you can pick and choose. Barring that with your info, you'll end up with a white elephant.

Do not risk your financial future. Period.

Yes, good advice.

We are looking to be at about 3000 sqft.

Okay, this is a good starting point: Though many people on this board are building very large houses, reality in the grand scheme of things is that 3000 sf is a very big house. Cut down your size.

Jennifer, I'm in central NC. Our county is rural; our builder is in the
next county over (Davidson) which is rural. He built tons of houses at
the nearby lakes. We just had to be up front and honest with him and
let him know that we aren't looking to build a Uwharrie Point quality
home. Maybe you need to do that with yours.

Good advice.

We may have come up with a solution .... buy a lakefront lot. The lot will cost us twice as much, but the appreciation is so much better on the lake. The upfront expense of the lot will pay itself off and it will appraise. We hadn't planned on living on the lake, but the idea of it is starting to grow on me now.

When we got married back in the '70's Mrs. Architectrunnerguy and I bought our first townhouse in Reston, Va. After a few years in that house it was obvious that the lakefront properties held their value and appreciated better. So we "bit the bullet" and moved a half mile to a lakefront townhouse. A little scary as in '81 interest rates where 15% but it was the best thing we did. Sold it in '87 doing MUCH better than the off water property.

AND, we got to enjoy the water to boot!

When we moved to Annapolis in 2004 we didn't consider anything BUT waterfront.

Smart thinking