How Much Profit Do Home Builders Actually Make?

Whilst there are plenty of people out there who believe that home builders make quite a large profit, it should be noted that this is actually only a small portion of the price of building because construction forms a major expense. A number of internal and external factors will play a role in the costs, thereby affecting the amount of profit that is generated by the builder.

Financial Breakdown
According to a survey that was conducted in 2009, builders invest around 92.1% of the price of a home into building and marketing it. This also included the costs of financing, overhead and sales. The bulk of this investment fell to construction costs (which came close to 58.1% of the sales price). This left only 8.9% of the price for the profit, which isn’t all that much.

  • Internal Factors
    Lately, it has appeared as if building costs have been on the rise – this will eat directly into the profit if the sales price does not also rise. Building materials (such as asphalt and siding) have also increased in cost, which again eats into the profit. Because home builders are reluctant to raise their prices for fear of getting no business, profit suffers
  • External Factors
    The prices will remain stagnant or drop when demand for new homes is low; this tends to happen in urban areas more then anywhere else. The interest rate for financing will also affect how much profit is made. In 2009, the interest rate was on a downward trend but in the years since it has actually been on the increase.

Increasing Profit
There are a number of things that builders can do to increase their profit, including: reducing the use of expensive materials (and materials in general), using auctions to purchase materials and working with partners. Some will also offer fewer upgrades, as this is also attractive to potential buyers who are hoping to build a brand new home on a budget.

If you were originally one of those people who believed that home builders made quite a handsome profit from their work and were off living like a king somewhere, you might be surprised to learn that this isn’t actually the case. In a bid to ensure that the construction is as affordable for you as possible, builders have actually taken a hard profit hit in recent years.