An Intro to Square Foot Estimating

When it comes to construction estimating, there’s always a fine balance between efficiency and accuracy. Square foot estimating is no different. This popular method allows contractors to prepare estimates in minutes rather than days. However, this speed comes at the cost of the estimate’s accuracy, which can create problems later. 

Knowing how and when to use square foot estimating can help limit these risks, so you can take advantage of this method’s speed. 

Key Takeaways

• Square foot estimating is a quick way to prepare a construction estimate, check a subcontractor’s bid, and bid labor during the early design stages of a project.
• Square foot estimates are less accurate than detailed estimates because they don’t consider the building's unique materials and design.
• Square foot estimates lump buildings with the same function together despite their significant differences. 

How Square Foot Estimating Works

A crucial tool in the construction industry, square foot estimates are used to forecast the construction cost for a project based on the building’s square footage (sq. ft.). They serve three key functions: 

First, they can be used to forecast a project’s total cost of construction during the early stages of design, when little design information is available. These estimated project costs make it possible to not only assess the feasibility of the project but to establish the budget needed to get a construction loan. 

Square foot estimates can also be used to check subcontractor bids by comparing their pricing to past projects. For instance, the bid for the HVAC system could be compared to the average price per square foot from past projects. If the bid is significantly different from past projects, the project manager should discuss it with the subcontractor. 

Lastly, because of their ease of use, they can be used to estimate labor costs for some in-house work. For example, the framing cost may be bid using the historical cost per square foot instead of determining the cost to install each framing component. 

3 Advantages of Square Foot Estimating

Square foot estimating has several advantages, including:

• They’re quick and easy to prepare. If the right data is available, an estimate can be made in minutes. This makes checking subcontractor bids incredibly simple.
• They can be prepared during the early preconstruction stages, even before floor plans have been prepared. All that’s needed are the building’s square footage and the right historical data. Because of this, architects and interior designers often use the cost per square foot.
• Square foot estimates provide a standardized method for evaluating construction pricing and can be used to quickly compare the cost of similar projects with slightly different sizes or designs. This is one reason why you’ll see the sales price for residential real estate converted to a cost per square foot when you’re browsing online. This makes it easier to compare the cost of two homes. Similarly, designers and contractors can quickly compare the cost of two building designs (for example, structural steel versus concrete frame) or the cost of the current project with past projects. 

Disadvantages of Square Foot Estimating

Of course, every advantage of square foot estimating comes with its own disadvantages. This is why construction managers always need to weigh the pros and cons before using this method. 

The biggest disadvantages of square foot estimating include:

• Like we mentioned before, square foot estimates just aren’t as accurate as preparing a detailed estimate. While they’re quick and easy to prepare, they don’t account for the project’s design, exterior and interior finishes, and other construction processes like a detailed estimate.
• Not all construction costs directly relate to a building’s square footage. A building’s square footage is accurate for some costs, like floor coverings. Other costs, like the concrete slab and roofing, are a function of the building’s footprint. Some costs are related to the building’s perimeter, like the foundation wall and footings. All in all, square foot estimating has a lot of blind spots.
• Boiling down all construction projects with a similar function (like apartments for instance) into a single cost is difficult. Some areas of buildings are expensive, while others cost less. For example, the kitchen and bathrooms of an apartment are more costly than the bedrooms. This means two-bedroom apartments will cost less per square foot than studio apartments with the same kitchen and bathroom, because a greater percentage of their space is less expensive.
• Historical data from similar projects is required for a square-foot estimate to be accurate. When a general contractor’s work varies significantly from project to project, developing good historical data for square-foot estimating can be challenging. 

At the end of the day, you have to weigh the benefits of using square-foot estimating against its weaknesses. Ask yourself, “Does the time we save using square foot estimating justify the loss of accuracy?”

How to Prepare a Square Foot Estimate for a Project

Here’s a quick guide to preparing a square foot estimate:

Step 1: Average Cost per Square Foot

First, determine the average cost per square foot for similar projects. The best data source for this is historical data from buildings with similar use, size, and structural design. Ideally, this data should come from buildings within 10% of the proposed building’s size, because the cost per square foot usually decreases as the building size increases. 

If you don’t have historical data, you can use published cost data from sources like Gordian® RSMeans Square Foot Costs, which contains square foot cost data for new home construction and commercial buildings. This data represents national averages for the building type. As you can expect, construction costs in New York City are higher than in a Midwest town. To address this, the book also includes a city cost index that can be used to adjust material costs and installation costs to a specific city. 

Step 2: Perimeter and Story Height Adjustments

Next, the estimator can adjust the cost per square foot to account for the building’s perimeter and story height. For a building of a given area, the cost per square foot increases as the length of the perimeter and the story height increases. RSMeans Square Foot Costs includes data to help make these adjustments. However, these adjustments are often not made when using historical data because of the difficulty in determining the correct adjustment.

Step 3: Base Project Cost

Next, determine the project’s base cost by multiplying the proposed building’s square footage by the square foot cost from Step 2.

Step 4: Estimated Cost of Construction

Finally, the estimated cost of construction is calculated by adding or deducting money from the base project cost to account for any differences between the proposed project and the completed projects used to determine the historical costs. Common adjustments address differences in the design, the project’s location, inflation, changes in the labor and construction markets, and changes in the building codes.

Something to Keep in Mind

Square foot pricing can be misleading because it’s based on limited design information. If you provide estimates that the client feels are inaccurate, it can easily strain your relationship. For this reason, use caution when providing the client with estimates based on this method. 

Here are a few more best practices to keep in mind: 

• In our experience, it’s best to quote the estimated overall cost to the client as a price range, say $200 to $300 per square foot. This gives the client the impression that the cost is not fixed but will vary. Additionally, quoting a cost range allows you to tighten the price range as the design develops.
• Estimates should always be accompanied by a written document that clearly communicates the assumptions behind the estimate to the client. This document ensures that contractors and clients mutually understand what’s included in the estimate. It can also help expose differences in contractor-client expectations so they can be addressed while establishing the budget. Plus, you can use this document to justify budget increases when upgrades, such as specifying marble countertops rather than plastic laminated, are added to the design. 

Wrapping Up

Square foot estimates offer a quick way to prepare an estimate for a client. But if used carelessly, they can leave the client with an unrealistic cost expectation. This can lead to awkward conversations about the project’s budget and leave the client feeling like the contractor lowballed the bid to get the job, only to raise their prices later. When used with caution and good judgment though, square foot estimates can be an essential tool for contractors. Just remember: Always clearly communicate what the estimate does and doesn’t cover. 

For an overview of the different types of estimates used in construction, check out our guide.