What's Actually Included in the Cost of a Custom Home?

Part 2 of 5 — Understanding the Cost of Building a Custom Home

Let's start with the big picture. When you build a custom home, the total cost is made up of a few distinct components. Understanding these components, what they are and how they relate to each other, is the foundation for everything else.

We'll refer to these as two buckets: Construction Costs — what you pay the contractor to build the house — and Project Costs — the design, engineering, and permitting required to get there.

Construction Costs

Your construction cost is the amount you pay the contractor. It has three parts: the base cost of building, the contractor's fee, and sales tax.

A. Base Construction Cost is the big one, roughly 70% of the total. This is what it takes to physically build the home: materials, labor, equipment, and general conditions. Materials are what you'd expect: lumber, concrete, steel, roofing, windows, tile, fixtures, everything that goes into the building. Labor is the skilled tradespeople who install all of it: framers, electricians, plumbers, tile setters, painters, and many more. Equipment covers things like cranes, excavators, and scaffolding. And general conditions are the less visible but essential costs that keep a job site running: temporary power, portable facilities, site protection, project supervision, builder's risk insurance, and cleanup.

B. Contractor Fee is what your general contractor charges to manage the entire construction process: coordinating trades, managing the schedule, handling procurement, solving problems daily. It's typically calculated as a percentage of the base construction cost. In our market, that fee generally falls between 12% and 20%.

C. Taxes. Washington state sales tax applies to construction. In the Eastside area, that's about 10.2%.

Project Costs

Project costs cover everything that happens before and around construction: the design and engineering work that produces the documents your contractor builds from, and the permits required to break ground.

D. Design and Engineering. Land surveying, geotechnical engineering, arborist assessments, architecture, structural engineering, civil engineering, mechanical, electrical, plumbing, interior design, and landscape architecture. This is the work that defines your site, turns your vision into a set of documents that can actually be built, and coordinates everything in between. For a custom home, design and engineering typically runs between 8% and 15% of construction costs.

The architect typically contracts all of these consultants directly, so you have one single contract with the architect covering the full scope of design and engineering. It works the same way on the construction side — your contractor hires the framers, electricians, cabinet installers, tile setters, and every other trade. You don't manage those relationships individually; the contractor is your one point of contact. The architect plays the same role for design and engineering.

If you're talking to an architect, always ask whether their fee includes all engineering and consultants. If it doesn't, that's not necessarily a problem — but it means you'll need to find, hire, and coordinate those consultants yourself. That's more contracts to manage, more invoices to track, and more risk that the work between disciplines doesn't line up. The fee should reflect what's included, so make sure you're comparing apples to apples.

This is a baseline. Projects with different conditions or scope may require additional consultants. A site near wetlands or a stream, for example, may need a project biologist to produce a critical areas report. A home with geothermal systems will need to expand the scope of the mechanical engineer, so their fee will be higher for that portion of the work. The specifics depend on your site and what you're building.

E. Permits. To start construction, you'll typically need two permits: a demolition permit (if an existing home needs to come down) and the building permit. Once the building permit is issued, construction can begin. These permits generally run about 2–3% of construction costs — not an exact science, but a reasonable ballpark. The actual number depends on the jurisdiction, the size of the home, the site, and the applicable zoning codes.

Other permits are needed during construction — right-of-way permits, mechanical permits, utility permits, and others. The work associated with these permits is typically reviewed by a building inspector, and the permit process is managed directly by the contractor. Their costs are included under Construction Costs, not here.

Putting it together

To simplify: Construction Costs + Project Costs = Total Investment.

Construction Costs are what you pay the contractor — the base cost of building, their fee, and sales tax:

A — Base Construction Cost: Materials, labor, equipment, general conditions
B — Contractor Fee: GC overhead and profit (12–20% of A)
C — Taxes: WA state sales tax (~10.2%)

Project Costs are the design, engineering, and permitting that happen before and around construction:

D — Design & Engineering: Survey, geotech, arborist, architecture, structural, civil, MEP, interiors, landscape (8–15% of construction costs)
E — Permits: Demolition permit, building permit, plan review, impact fees (~2–3% of construction costs)

Total Investment = A + B + C + D + E

To put it simply: for every $100 you invest in your home, about $70 goes to construction materials and labor, $12 to the contractor's fee, $8 to sales tax, $7 to design and engineering, and $3 to permits.

What's not included

Your Total Investment is what it costs to design and build the house — from the first site survey through the final inspection. It includes everything your contractor and architect are responsible for delivering.

A few significant costs sit outside that number: land acquisition, landscaping, furnishings, owner's insurance during construction, and financing costs. These are real expenses, but they're separate from the Total Investment and come with their own variables. When we refer to "Total Investment" in this series, we mean the cost of creating the home itself — not everything around it.

Now that you know what goes into the total cost, the next question is how to distill it into a single number you can use — one that lets you compare options, set expectations, and have a meaningful conversation about what your home will cost. That's where a very useful ratio comes in: cost per square foot. In the next post, we'll explain how it works as a metric, why it's useful, and where it can trip you up if you're not careful.

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