My family is considering spending the bulk of our life savings to buy
a house in Los Altos, California.

Given the insane cost for small, older houses, I've been wondering if
I should think about BUILDING a new house instead of buying something
very over priced.  For example, if most of the cost is just the cost
of the land, perhaps it might make sense to build a house that would
then be worth more at resale time.

I don't yet understand the economics involved in building a house vs.
buying a house in this area, to understand how much more expensive
building vs. buying is.

Could you help me get pointers to answers for the following six critical questions?

(1) What is a contemporary rule-of-thumb, per-square-foot cost of
construction for a new 2 story house with basement in the Los Altos
area?

(2) What is a contemporary rule-of-thumb, cost of land in the Los Altos area?

(3) How much of the cost of houses is the land, vs. the house on the land?

(4) How can I think about assessing the value of land?  What makes one
lot more valuable than another lot?

(5) If I can't find a clear lot, how much can I roughly expect to
spend to demolish an existing structure and prepare the lot for
construction?

(6) Ignoring the quality of life issues of a custom home, what are the
most important economic comparisons between buying a home and building
a home?  What else should I think about?

I used to be a Real Estate Agent and I lived in Los Altos for awhile a
few years ago (I was not an agent at the time).  Here are my comments:

(1)  I don't know the answer to this but I would expect it to be at
least $130/sq. ft probably more.  Of course it all depends on how nice
you want it to be.  See: http://www.b4ubuild.com/faq/faq_0002.shtml
for one website's answer.  Oh basements are fairly rare in Los Altos,
most homes do not have them (I have seen only a handful of homes in
Los Altos with basements).

(2)  If you go to Realtor.com you can search for land and/or homes for
sale in Los Altos, CA (you have to choose the "More Search Options"
button to be able to just specify land for example).  This will list
for you all of the properties for sale in Los Altos that are listed in
the Multiple Listing Service (MLS).  I performed the search for just
land and it returned 14 results but most were in Los Altos Hills (not
Los Altos).  Anyway, there is a 1/4 acre lot available for $1.575 M
and a .5 acre lot for $1.9M.  Larger lots are available you can
perform the search and find out more.

(3)  I don't know but a Los Altos Real Estate Agent could probably
help you out (and I'm sure they would only be too happy to help you
out).

(4)  Location, size, location, improvements, location, etc...   Also
see #3, although in this case they may refer you to an appraiser for
help with this question.

(5)  I don't know.  See #3 again?

(6)  My guess is that it is going to be more expensive to build a
house especially considering the low availability (and high price) of
land in Los Altos.  If you buy the house then it's already built and
you don't have to wait any longer than it takes to close on it to own
it and move in.  Time is money, so timing (in my opinion) is an
important economic consideration.  Again, a good Real Estate Agent in
Los Altos could give you a more informed answer.  My Father-in-Law
(who lives in Los Altos) bought his house there and then spent a
considerable sum fixing up the place (pretty much had the whole place
re-done).  It is only a few houses away from the Los Altos library and
I absolutely love visiting there.  His house has no basement, is on a
tiny lot, but has 4 bedrooms, 3 car garage, 2.5 baths, formal living
and dining rooms, an informal dining area and family room.  It would
probably sell for ~$2M  (my guess is that he put in ~$1.5M into it but
he has been there for a few years now).  It would seem to me that
buying the smaller - medium sized house (and possibly fixing it up)
would result in the greatest value.  Your mileage may very.

tom1994-ga, thanks for the helpful comments.  We have been working
with a real estate agent, but it's still difficult to get a clear
picture of the financial landscape...  I guess no one really knows for
sure!  Appreciate you taking the time to add your comments!