Do Small Houses Cost More Per Square Foot? (Solved!)

Buying a tiny home is the dream for many minimalists, homeowners on a budget, and both young and older couples who want to downsize and travel the world.

One of the little-known facts about tiny houses that have emerged in recent years, however, is that they aren’t as cheap as you think.

Often, homeowners will attempt to build their own tiny home on a budget but find that after all the permits, laws to comply with, materials, and the skyrocketing prices of contractors in a booming tiny house industry, adds up to a hefty price tag.

Even pre-owned tiny homes can creep into costing nearly one hundred thousand dollars or more.

Here’s the Rundown on Why Small Houses Cost More per Square Foot:

Smaller houses cost more per sq ft because they have less area to divide the overall cost by. If you have two houses – one at 1,000 sq ft costing $110,000, and one at 2,000 sq ft costing $210,000, divide the total value by the sq ft: the small house is $110/sq ft, but $105 for the big house.

Basically, the square footage cost will be more because the overall value of your home and property is divided by the smaller area (or square footage) of the house.

Why Do Smaller Houses Cost More per Square Foot?

Imagine that you are ordering pizza. Your options are to order a 10-inch pizza for $10 or a 15-inch pizza for $12.

The 10in pizza costs $1.00 per inch, while the 15in pizza only costs $0.80 per inch. The 15in pizza will cost more, but the price per inch of the pizza is going to cost less.

This is because you have a lot more area (or size of a pizza) to divide the total cost by, giving you more food for the price.

Obviously, the price difference is cheaper in this scenario at only a $2 increase, but the premise is the same with large and small sq ft houses.

Large vs. Small Houses Per Square Foot:

Now, let’s say that you are moving into an empty neighborhood with empty lots.

All the lots cost the same at $10,000.

You can either build a 1,000 sq ft single-story house or double it at 2,000 sq ft as a two-story house. This means that both houses will have the same amount of land leftover since the second house is essentially stacked upon itself.

Both of these options will charge you an initial price of $100/sq ft to build the house, plus the land cost.

This means that the smaller house will cost a total of $110,000 and the larger $210,000.

If you divide those total values by the number of sq ft of the home, you end up with an actual value of $110/sq ft for the smaller house and $105/sq ft for the larger.

So, even if you only paid the contractor $100/sq ft, if you sold the house, the next person would be paying for the overall value of the home (including the value of the land), which would result in them paying for an increased price per square foot.

While this difference in cost of square feet is pretty small, the basic idea is that the smaller house does cost you less money overall, but the cost per square foot is more.

In this case, you are paying an extra $100,000 for the larger house, but you are getting the same amount of leftover land as the smaller home plus double the amount of living space in your home.

How Much Can the Price Differ?

The price can differ quite a bit and is difficult to calculate from person to person.

In our previous scenario, the price difference is quite small per square foot. Still, depending on the land’s cost, the high-quality materials you use, and your amenities, you could be paying even more per square feet and end up with a much smaller home.

For example, buying a luxurious smaller home vs. a basic, economy large home will drastically increase how much you are paying per square foot.

If your tiny home has all the top-selling, highest rated appliances, plus tile, full carpet, and a top-of-the-line AC and Heating system, then you might end up paying almost as much as you would have for a bare-bones two-story home with tons of space.

That means your price per square foot is nearly double what it needs to be, but for far less space than a two-story home.

What is Considered a Small House in this Regard?

Small houses are generally between 900 and 2,500 square feet, whereas tiny homes are much less than 900 square feet.

However, your idea of “small” depends greatly on your perspective.

The home I live in is 1,800 square feet, but it feels pretty big to me, with three bedrooms and two bathrooms, a full kitchen, dining room, and living room. Plus a large yard! However, someone else may consider that to be pretty small.

Some houses are larger than 3,000 square feet that are still not considered very big by the fabulously wealthy, so it all depends on your perspective.

In this scenario, 1,000 square feet is pretty small and most likely will only consist of a single-story with kitchen, bath, a bedroom or two, and living space.

Anything 2,000 square feet and upward will probably have room for a second story or a large single-story home that takes up quite a lot of land.

Is it the Same for Urban and Rural Areas?

Pricing of land and contractor help varies greatly depending on where you set up your home.

For example, a 3-acre property on a beautiful lakeshore will cost you millions of dollars, while a 3-acre property in a rural farming town might only cost you $100,000.

The same goes for an urban or rural district.

City living is always more expensive because you are paying for the value of having surrounding amenities and attractions within walking distance. Therefore, a 2,000 square foot house in the city may cost more than a 2,000 square foot house in the countryside.

Property taxes and prices are generally higher in the city than they are in the country as well.

Can You Negotiate Better Deals on Smaller Houses?

Negotiating better deals on smaller houses is down to you and your real estate agent.

Most of the time, homeowners won’t really have a say in negotiations, but speaking to your real estate agent or lawyer can help.

For example, if you have a set budget, and your real estate agent finds you the “perfect” house at a higher cost, they can try to negotiate the price down for you.

Negotiations happen all the time. If you need something really cheap, consider going to a bank auction.

How Much Does lot Size Affect Home Price?

In our example scenario at the beginning of the article, we priced two equally-sized lots at $10,000 as our starting point.

However, in the real world, your lot may cost $50,000 or more depending on how much land you are looking to buy, where it is located, and what kind of terrain you live in.

When you calculate the value of your home, the value of the land does factor in.

More often than not, a house with a larger piece of land will cost more.

An Example:

Say you want to build a 1,000 square foot house somewhere out in the country.

Your options are to buy a small 1-acre plot of land for $10,000 or a large 5-acre plot of land for $50,000. The price to build the house on either lot will cost $100/sq ft, just like in our scenario before, making each house cost $100,000 to build.

The smaller plot house value will total $110,000, and the larger plot house value will total $150,000.

This means that their overall square footage costs (when dividing the total value by 1,000 square feet) are $110 for the smaller plot and $150 for the larger plot.

Even though both houses are the same size, built at the same price, your total payment for the home and the land increases the square footage value because you have a much larger plot of land.

So, even though you are paying $50 more per sq ft for the same-sized house, the value of your land increases the value of your home.

Basically:

To summarize even further, let’s say you are house shopping.

You find two very similar homes that you love, and both are 1,000 square feet made of the same materials, and both are in the countryside.

However, one home is on 5 acres of land, but the other is only on 1 acre of land. The 5-acre land home will always cost more, even though it is basically the same house.

The land’s overall investment and value will increase the entire cost because you are paying for both that similar house and the property it is sitting on.

Please also read our article about why Japanese houses are smaller.

Does it Cost More Per Square Feet to Build a Smaller House?

Depending on your house’s quality and the expensive materials you use, your smaller house could cost much more to build.

For example, a luxury home – even a tiny one – costs between $200-$500 to build per square foot. This is because the materials you use will be higher-quality, such as granite or fancy tile vs. dry wood and cheap carpeted floors.

Therefore, an average economy home will probably cost you between $100-$200 per square foot.

It all depends on your investment’s overall value, divided by the square footage of your home. If your investment is huge, even a small home can cost much more per square foot than a large home.

Sources:

How Much Does It Cost To Build A House?