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  • Writer's pictureLily Dittschlag & Dennis Dittschlag


money, dollar bills, building cost

What is fair market value for a newly custom build home? And how does this compare to a newly built home being listed on the market today?

When we first started on our new home journey, we knew fairly accurately what the market value of new homes in our neighborhood was and we obviously knew what our builder was quoting us for our home build. These two values describe a final product that includes the land, the house and everything that comes with it. But we were wondering if there is a way to create a bottom up calculation that validates if we are in the right ballpark or if we are overpaying --- a plausibility check if you will....

Depending on your personal situation, there are different options to go about a custom home build. Few people will be able to project manage the build or act as general contractor, acquire the land themselves, hire an architect and trades, supervise, order materials, etc. We are certainly not builders and don't have the transparency or experience to price things out correctly in detail or manage the build. Most people will either acquire the land, then hire an architect and a builder or buy from the builder as a complete turnkey solution, so let's focus on these common approaches to determine the approximate cost or a cost range.

For calculation purposes, we are looking at the cost for an approximately 2,500 square foot, 2-storey single-family home in Toronto, and particularly in our neighborhood of Mimico in South Etobicoke, on a roughly 25x125 foot lot. Some of the standard features are a finished basement and a garage. This is our baseline property.

Land Costs

overhead view of a city

This is where it starts, finding a piece of land to build your dream home on. Where you build will be a decisive for the overall costs. Since we're not going for the ultra-expensive lakefront property, we're staying with the cost for a generic property in the neighborhood. As per the latest statistics report by the Candian Real Estate Association (CREA), the actual composite price of a property in the Greater Toronto Area (GTA) is $890,400. Based on our observation of our neighborhood, buildable properties have gone for approximately the same figure lately, that is anywhere in the $850,000 to $900,000 range. By buildable property we mean land with a tear-down building on it, typically a 1950s to 70s bungalow.

Based on this value, we assume a minimum 20% down payment for mortgage financing that comes to $178,080, an additional $1,500 for legal fees and of course our land transfer tax of $28,566.

Given the land value of $890,400, the acquisition cost equal to $208,146 (not including financing payments to your lender)!

If your builder acquires the land and is handling the whole project as a turnkey solution, then the land value of $890,400 will be built into your final price. With today's online resources, you will be able to look up the property value that the builder purchased the land for and calculate their acquisition cost.

Demo Costs


In any major city, there is practically no free land to develop anymore, no empty lots that you can buy up. This is Toronto and not Detroit after all (though Detroit is one cool place too). As neighborhoods are changing and developing over time, a tear-down of an existing building will be required to make room for your new custom home. Depending on the existing structure, site access and other conditions (e.g. requiring hand demo versus machine only), the demolition costs may vary somewhat.

As an estimate, let's work with an average demolition cost of $25,000.

Construction Costs

Construction costs are generally described in dollar per square foot. Typically, they are divided into hard cost and soft cost.

Hard cost are pretty much fixed for any type of construction, like foundations, framing, the roof and it includes the material and labour portion. The Altus Group 2020 Canadian Cost Guide gives a range of $400 to $900 per square foot for a custom built single family residential in the GTA. This cost range is significantly higher than the single family residential with an unfinished basement ($115 to $215) and other values we have seen quoted elsewhere. We feel that the actual cost are somewhere in the range of $250 to $400 like they have been quoted here. The top value is somewhat open-ended for custom and luxury homes because you can spend money endlessly on premium features and finishes. For calculations based on our cost model, let's proceed with $340 per square foot.

Why is there such a big range?

Costs are affected by many factors, but some of the main cost drivers are the desired style of the building, having a finished basement or not, and adding non-standard materials and other extras, from decks and patios to appliances or fixtures. The more posh luxury items you include, the higher cost will be.

Looking back at what we have specified for our house, we definitely don't have all standard features and finishes, but we also don't have any over the top luxury items. What is driving up our cost are the requirements for an energy efficient Passive House certification and some other extras we felt we wanted to have.

Soft cost are variable and depending on the particular project and site. These include permits, engineering, special equipment, inspection fees, etc. While the hard cost are the main contributor to the overall construction cost, the soft cost can still make up a significant portion overall with $40 to $80 per square foot. For simplicity, let's assume the soft cost are in the middle at $60 per square foot.

This brings the construction total to ($340 per sq ft + $60 per sq ft) x 2,500 sq ft = $1,000,000!

Construction site

Total Cost

Again for perspective, we are looking at the cost to build an approximately 2,500 square foot, 2-storey single-family home in Toronto, on a 25x125 foot lot, with a finished basement, garage and a significant level of extras that are custom to your project while not going for an ultimate luxury home.

Land value $ 890,400

Demo cost $ 25,000

Construction $1,000,000

Total Cost $1,915,400 (plus acquisition, closing and financing cost)

The land value could be financed by yourself before hiring a builder to construct the house or be built in to the final price if the builder acquires it and delivers a turnkey project. With online resources available, land value and acquisition cost can be estimated or tracked rather transparently.

Construction costs will vary depending on the project and specifications. Your values could be coming in lower than our estimation as there is a big price range depending on the specifications and obviously on the quotation from builders for your project. In any case, the construction cost will always include the builder's profit margin. Personally, we were warned by family friends about builders and contractors quoting somewhere closer to the $200 per square foot mark for reasons of legitimacy of the builder and quality of the home itself.

If a builder is selling one of their "model homes" that is completed before finding a buyer or customizing some finishes of an in-progress home, the builder will include more of the standard features with a few upgrades that appeal to a broad list of potential home buyers. These homes will cost less than a fully customized home and probably come in with lower construction cost of around $750,000 to $800,000 which brings the total list price of the house to $1,650,000 to $1,700,000. While these homes may not include everything on your wish list, they are still a good deal and essentially get you into a unique, custom home in your desired neighborhood.


Buying a house house in Toronto is expensive, no matter what. Buying a newly built, fully customized home in our neighborhood similar to our baseline property will be around $1,900,000 approximately.

So, to get back to our questions: What is fair market value for a newly custom build home? And how does this compare to a newly built home being listed on the market today?

This is not easy to answer because custom homes are sold prior to construction start or finish and not listed or sold through MLS, so there is no historic data you can research. But it's safe to say that new home prices in your neighborhood will form the minimum price for a custom home project and there is almost no limit depending on the specifications and extras you want. To get you into your dream home and get your requirements satisfied, you will need to pay some extra money. The only way to save is to contribute sweat equity by project managing, contracting or executing certain trades yourself.

How much extra it will cost to get your custom features and if it's even worth it, well, that depends entirely on you...

In Cost and Equity --- Part 2 we will compare the cost of building a home with the cost of buying a ready home and address the question: Does building a custom home bring you instant equity?


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