Should I choose a cost-plus or fixed-price contract to build my custom home?
When building a custom home, one of the first decisions you’ll need to make is what type of contract to use. There are three main types of contracts: Cost plus, builder management fee, or fixed price. Understanding the differences between these two types of contracts is essential to making an informed decision and ensuring a smooth building process.
Fixed price contracts are exactly what they sound like: the price of the project is fixed at the outset and will not change unless the homeowner requests changes. This type of contract is a good option for homeowners who want a set budget and the peace of mind that comes with knowing the exact cost of their project.
Cost-plus contracts, on the other hand, are a little more complex. With a cost-plus contract, the builder will charge the homeowner the actual cost of materials and labour plus an additional fee for their services. This fee is typically a percentage of the total cost of the project. Cost-plus contracts are a good option for homeowners who want a little more flexibility in their budget and are willing to pay a little extra for it.
A lump sum builder management fee fixes the fees for the builder’s services. The homeowner pays a set amount for the builder’s expertise, including project management, scheduling, and overseeing the construction process. This type of fee is a good option for homeowners who want a set budget and the peace of mind that comes with knowing the exact cost for the labour of their project. That being said, the client still has the risk of flucuating pricing for materials and finishings.
So which type of contract is right for you? It ultimately comes down to your personal preferences and financial situation. Fixed price contracts offer the stability of a set budget but may not allow for as much flexibility in terms of changes. Cost-plus or management contracts offer more flexibility but may result in higher overall costs.
It’s important to carefully consider the pros and cons of all types of contracts and choose the one that best fits your needs. Whichever type of contract you choose, be sure to clearly communicate your expectations with your builder and have everything in writing to avoid any misunderstandings down the line.
