The discussion of $/sqft was discussed by several others in the comment section of McMansion #4. As I stated there, you can definitely get a house built for $140/sqft, but that’s barebone construction costs.

Soft costs such as permits, architectural fees, origination points, transfer taxes, title insurance, appraisal fee, overhead, hazard/cost of construction insurance etc. These can be significant and raise the $/sqft by as much as $35-$50/sqft.

Tack on the “custom” features the owner wants like stone floors, high end cabinetry, marble/granite counters, undermounted sinks, landscaping and etc and you’ll talking another $20-40/sqft. So when you add all that up, $225/sqft is may be on the high end, but it’s not too far off.

As for the % commission, I’m sure there is fluctuation in the market, but 6% is the norm so that’s what I used. I have no data that supports transactions are going through at 3.5-5%, but thanks for the heads up!

I just found out this blog a few hours ago, and I can not keep reading all your posts. I love your blog! Thanks very much for your series on empty McMansion. Here I want to point out two issues on your profit/loss formula.

#1. Do you ever think that the building cost of these McMansions are actually lower than $150/sqft? I have a couple of friends in small Asian construction companies. According to them, for those ~4000 sqft new house, the typical building cost quote is between $500K to $600K, this gives about $140/sqft.

#2. The typical commission in SoCal is 5%, not 6%. Sometimes, those flippers use the same agent to buy old house and sell the new updated house, and only give this agent 1%-1.5% during the selling. Adding 2.5% commission promised to the buyer agent, this gives out total selling commission of 3.5%-4%.

With $140/sqft and 4% updated, many McMansion still nets in handsome profits. That is why there are still many McMansions coming out of the market in current market.