How Much Does it Cost to Build a Home in Silicon Valley?

How much does it cost to build a home in Silicon Valley?

I get this question a lot from my clients. Despite the relatively high home prices in Silicon Valley, many buyers find that the housing stock is too old or too small for their needs. Furthermore, houses in this area are most often found in Craftsman style and Eichler style, leaving fans of modern and contemporary architecture with limited options.

I personally fit into that latter category: after 2 years of searching for a home, I decided to buy a fixer-upper (a house in need of repairs), and build a new, modern home. I’m still in the early phases of working with architects to design our home and get it approved by the city, but I thought it’d be useful to share my experience with others here looking to do something similar.

Today, I’ll focus on perhaps the first step: financing. More specifically, I’ll cover what site acquisition cost and building costs look like in Silicon Valley -- at least based on my research and personal experience.

Let's discuss 1. Site Acquisition Cost and 2. Building Cost in Silicon Valley.

1. Site Acquisition Cost

Site acquisition refers to purchasing an empty lot (rare in Silicon Valley) or a house to be torn down. If you have your mind set on tearing down and rebuilding, as opposed to remodeling the existing structure, then your priority should be on acquiring the site without paying much for the structure standing in place.

Recent fixer-upper/teardown sales in 2016 for representative homes in Silicon Valley neighborhoods were the following:

2. Building Cost

Building cost is divided into two categories: a) construction costs and b) soft costs. Construction costs cover the actual expenses incurred in the physical building process -- materials, construction labor, fees, and profit for the general contractor overseeing the construction. Soft costs refer to fees not directly associated with hard construction and include fees for architects, structural engineers, other consultants, as well as city permitting fees, etc.

a) Construction Costs

Construction costs vary greatly depending on materials and quality of the home. Generally, a reasonable range can be thought of as being somewhere from $300/sqft to $700/sqft.

Modern/contemporary homes

can be most expensive to build despite the “simpler” appearance, both because of greater cost in more expensive materials (large glass panes, concrete, steel structure) as well as precision required to get “clean” lines in construction process.

Craftsman homes are moderately expensive due to their crown moldings and wood trims.

Mediterranean style homes, if built well and with proper care, can be very expensive. However, Mediterranean style can also be the least expensive style to build, because stucco is inexpensive and the trim-work can hide construction flaws. There have been many Mediterranean homes built by spec builders in Palo Alto in recent years, and materials and finishes used for these homes have not been very good. For this reason, I think this style is becoming less attractive to buyers in this area.

In general, with younger families in areas like Palo Alto, I’m seeing an increased interest in modern styles -- a clear departure from just a few years ago when Craftsman homes were more popular.

I have interviewed several modern/contemporary home architects in the bay area and in Los Angeles. If you would like to build an ultra-modern home worthy of Architectural Digest, construction costs can easily exceed $500-$1000/sqft. At 5,000 sqft house size, that’d translate to $2.5M to $5M just in hard construction costs - before soft costs and not including site acquisition cost!

If you are looking to build a craftsman or a more traditional home with modern interior inside (“modern farm house” style has been trending these days), I have seen clients build a very nice traditional home spending $300/sqft to $400/sqft. For a 3,000 sqft home, it means it could range from $900,000 to $1,200,000.

b) Soft Costs

Soft costs are fees that are not exactly involved in building walls, foundation, structure of the house. Soft costs include architect fees, site surveyor fee, structural engineer fees, landscape architect fees, Title 24 consultant fees, etc. For typical projects, soft costs would equal 20% - 25% of the total construction costs mentioned above, and this would be “on top” of the construction costs. For example, if your total construction cost is $2,000,000, then soft costs would be about $400,000 - $500,000. The biggest portion of soft costs would be architect fees.

  • Architect Fees: The quotes I received for architect fees varied a lot. For a modern home, the lowest architect fee quote I received was 7% of total construction cost. For example, if the total construction cost mentioned above comes out to be $2,000,000, then it means your architect fee will be $140,000 ($2,000,000 * 7%). Architects with a bit more history and reputation commanded a premium -- ranging from 15% to 18% of the total construction cost. It’s worth noting that most of these architects charge per hour, with a do-not-exceed clause set to some % of construction cost like I mentioned.

  • Other Soft Costs:

Other soft costs include civil engineer fee (~$5,500), landscape architect (~$20,000 -$70,000), energy consultant (~$20,000), surveyor (~$3,000), structural engineer (~$8,000), geotechnical engineer, and fees payable to government and non-government agencies (permit fees, impact fees, recording fees, utility services & engineering fees, inspection fees). These fees are very rough estimates for a 3,000 sqft – 4,000 sqft home.

Therefore, very roughly, if you would like to purchase a 5,000 sqft lot in Mountain View for $1,300,000 and build a nice traditional 2,000 sqft home at $300/sqft, construction costs would be ~$600,000 (2,000 sqft * $300), and soft costs would be ~$120,000 ($600,000 construction cost * 20%) roughly. The total cost would be $2,020,000.

If you would like to purchase a 9,000 sqft lot in Midtown Palo Alto or a 10,000 sqft lot in Los Altos for $2,500,000 and build an ultra-modern 5,000 sqft home at $650/sqft, construction costs would be ~$3,250,000 (5,000 sqft * $650), and soft costs would be ~$812,500 ($3,250,000 construction cost *25%) roughly. The total cost would be $6,562,500.

If you want to learn how to finance your home-building project,

see my next post:

How Do Construction Loans Work?

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MI YOUNG LEE

Real Estate Broker | Attorney

in Silicon Valley

Loves Dogs, Music, Beach, 

Interior Design & Home Building

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MI YOUNG LEE

Real Estate Broker | Attorney 

Stanford B.A. | UCLA Law J.D.

 

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