First OP's statement "It looks like it is cheaper than just buying house already built". If he has cash rich, he/she will directly bid (inexperienced in building) and get home.
Four of my friends started extension, found contractor, applied permits...blah..blah..blah..etc.
First one completed 3000 sqft remake (keeping some portion), went through architect,approval and a contractor bidding, finally completed with 2 months extension(original 12-15 months) , cost over run $50k from $400k
Another completed 85% after 10 months (original estimate 6 months), 50% price increase from $200k to $350k for 800 sqft addition.
Third one, still under approval process after 15 months, neighbor's objected some windows overlooking their swimming pool etc.
Fourth one, never completed, but spent 10k, went over litigation and finally got his money back with 10k loss. The contractor about to bankrupt due to his court case. My friend somehow grabbed whatever he can from the contractor.
Building or extension is a kind of full time job with huge factor of safety in terms of money, be ready to spend 30% to 50%. If you estimate properly with high cushion, you may end up 20%.
Key is good architect, good contractor, your time, and sufficient money.