A fixed- price contract is one in which all the plans, specifications and all of the materials and finishes are fully determined (fixed) before you start construction. A cost-plus contract takes all the costs of the home and adds either a percentage of the costs or a flat fee for the builder’s overhead and management fee.
Either a fixed-price or a cost-plus contract can be used. It depends on what you’re most comfortable with. Our costs are the same whether we use a fixed-price or a cost-plus contract. However, the price you’ll pay will differ because of the risks associated with each contract.
The advantages of a fixed-price contract are the price you pay for your home will be pre-determined (fixed) whether the price of materials and labor goes up or down. If the price of materials and labor decrease, the builder benefits. If they increase, the builder absorbs the additional cost. The builder assumes full responsibility for all risks associated with the cost of your new home. In general, people who do well with a fixed-price contract are people who are not willing to risk price fluctuations. With a fixed-price contract, the cost of repairing or replacing any item that is not right, large or small is our responsibility. Most homebuyers are more comfortable knowing their exact cost and are willing to pay a small premium for this comfort.
A cost-plus contract differs from a fixed-price contract in that it takes the actual cost of building the home and adds a fee for our overhead and management. It can either be a flat fee or a percentage of the costs. Of course, neither you nor we will know the exact bottom line for the building costs until the final accounting is completed, shortly after move-in. We can give you an accurate cost estimate, but it is exactly that – an estimate – until the final accounting. With a cost-plus contract, you’ll pay the actual costs for all labor and materials, plus a builder’s fee.
A cost-plus contract can be advantageous when building a larger custom home with finish levels and other things changing during the process. With a cost-plus contract, homeowners know their actual costs on an ongoing basis. We build with the same care and quality whether your home is a fixed price or cost plus contract. If there is a repair or replacement issue, large or small with the work, a cost-plus contract provides the synergy of determining win-win solutions that are in the best interests of the homeowner, since they absorb the cost.
We have used both types of contract with our clients in the past. You can trust that we are working in your behalf in either scenario. If you are comfortable not knowing your exact total costs until the end of the project, then a cost-plus contract may be best for you. Your final cost will depend on the choices you make.
Both types of contracts are successfully used. You decide which one works best for you.