Mortgage
Construction Cost Averages Are Mispricing Appraisals and Renovation Loans Across the Country
By Real Estate Wire Staff, . Real Estate Wire.
National cost-per-square-foot figures are quietly mispricing appraisals, draw schedules and renovation loans across the country, according to a column published by HousingWire by Dave Rany, founder of SlabCalc, a firm that publishes construction cost references built from public state department of transportation bid data.
The argument rests on actual contract prices, not survey estimates. Every state DOT publishes bid tabulations showing what contractors submitted to win government work. Rany pulled winning bids from 16 agencies across 26 metropolitan areas, covering 1,233 public contracts for a standardized concrete flatwork item, specifically a four-inch sidewalk placement of at least 300 square feet, let between 2023 and 2026.
What the numbers show
The spread is wide enough to matter in any deal. Detroit comes in at $4.50 per square foot for the same specification that runs $13.68 in New York.
New York is the sharpest case. Its range runs from $13.68 up to $20.85 per square foot. A national average near $10 is not just imprecise there: it falls short by 40 percent at the low end of New York's own range, and by a factor of two at the high end, in the market where a dollar error costs the most.
Where the error lands
Rany identifies three places the mismatch does real damage.
In appraisals, the cost approach requires a defensible per-unit figure.
In construction lending, draw schedules release funds against percentage-of-completion estimates. A regionally wrong cost assumption means the schedule is off from the first draw, and the gap widens as the build progresses rather than surfacing at the end.
Renovation lending is the most exposed category, because both the cost estimate and the after-improved value are modeled. A regional cost error moves both figures in the same direction simultaneously, which makes the combined mistake harder to catch.
Limitations the data carries
Three constraints apply. DOT contracts are large-volume placements and some carry prevailing-wage requirements, so small residential jobs typically price above the low end of these ranges because mobilization costs weigh more heavily on a small pour. Four large metros, San Diego, Boston, Las Vegas and Phoenix, are excluded: the first three lacked enough usable bid lines, and Arizona DOT does not publish a bulk bid-tabulation export. Prices are shown as bid and are not adjusted for inflation.
How to check your own assumptions
The underlying dataset is published under a Creative Commons Attribution license with a DOI, meaning any figure in the piece can be verified against the original state records. Rany's method for practitioners: search your state DOT's name plus "bid tabulations" or "average unit prices," find the flatwork placement item (usually priced by the square yard, so divide by nine to get square feet), and compare the result against whatever cost figure your current process uses. Caltrans prices by the cubic yard, which requires a different conversion.
For older bids, the piece recommends adjusting using the WPU1333 index: divide the current index value by the value for the letting year and multiply the old price by the result.
The practical question for lenders and appraisers is straightforward: if the DOT data for your market is close to the figure you are already using, you have evidence your assumption holds. If it is far off, you have found a problem before it reaches a deal rather than after.
Source: https://www.housingwire.com/articles/national-cost-square-foot-wrong/
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