There are three main ways builders approach pricing a project:
- Cost plus a percentage
- Cost plus a fixed fee
For each project, we work with our clients to determine the best pricing model, as there are pros and cons of each approach that depend on the complexity of the project, fluctuating market conditions, and the client.
Fixed price means we give a guaranteed price for the home. The builder sets allowances for the various selections the client will make throughout the project and if the client chose to spend more, they pay the difference.
This works best for customers who want the builder to take the risk of cost overruns and incorrect estimating, and who want to knows exactly what the project will cost. This is a great option for a homeowner of a less complicated home, situations where the vast majority of selections have been made, and customers with a very specific budget and inflationary environments.
Cost plus a percentage
A cost plus a percentage contract is where the client is charged the costs of the project plus a percentage, which is the builder fee. Working this way means more decisions can be made during the build process and the client is not paying for builder to take on risk of cost overruns if there aren’t any.
This works best for people who want to see the transparency of costs, who are comfortable not knowing the exact project amount, who are willing to accept the risk of cost overruns or incorrect estimating. This is a great option for complex houses and remodels, projects with loosely defined scope, stable or deflationary environment, customers who would like to make selections later in the process and are more interested in getting exactly what they want than managing to a strict budget.
Cost plus a fixed fee
A cost plus a fixed fee contract is similar to the cost plus a percentage contract except the builder fee is a fixed amount. The added advantage of this model of builder fee is that the builder is not rewarded for cost overruns and not penalized for coming in under budget.
In cases where the scope of the project is difficult to nail down or define, such as remodels, this can be a more difficult approach to employ.
Honesty is the best policy
When you hear stories of cost overruns or nightmare contractors, it’s not because of one pricing model over another. What matters most when selecting a contractor is trusting that they are a qualified individual with integrity who speaks to you with openness and honesty. We hope our many 5-star ratings on Houzz and our client testimonials demonstrate our reputation for building quality homes on budget and on time. If you have any hesitations, please contact Paul for a free consultation.