When designing and building your own custom home there are three main methods of contracting that we use at Landmark Custom Homes; Cost-plus a percentage, cost plus a fixed fee and fixed price contracts. Each option has its individual set of benefits. Ultimately, your availability, desire for involvement and budget will determine which method better meets your needs.
Cost-Plus a percentage Contract & Cost Plus a fixed fee Contract
The cost-plus method is the more involved of the contract structures and offers more flexibility with the budget. Much like the fixed cost method, these contracts are based upon an estimated construction cost; however, throughout the project costs and proposals are individually evaluated and compared giving the owner a fully transparent view of the overall cost structure of the home.
These options are better suited for complex projects where the owner will be readily available to make financial decisions at a moment’s notice. The major benefit to these types of contracts is the pricing transparency. During construction, the builder will contact you regularly to discuss pricing on materials, bids and labor expenditure. Our experts will be by your side through the entire process to provide professional advice, but ultimately every financial decision would be yours to make.
The difference between cost plus a percentage and cost plus a fixed fee is that the percentage fee is based on the total construction cost of the job and will go up and down as costs come in from vendors. In the cost plus fixed fee, the fee is typically based on the estimated price at the start of the job and does not change along the way. This gives the owner a firm fee which will be paid to the contractor while allowing him the flexibility of bidding the job.
Both of these methods of contracting involve continual input from the client. Decisions that were not made at the onset of the project will have to be made during the construction phase. This method works great for client who wants to be as involved as possible during every phase of the construction process. In these types of contracts, owner assumes the risk of costs increasing or decreasing during the course of the job.
Fixed Cost Contract
A fixed-cost contract is exactly as the title implies, it is a pricing method based on a fixed cost agreed upon, between you and the custom home builder. The key to ensuring that the house is built exactly as the owner envisioned is to have clear communication.
When making the estimate, the builder generally prices design elements as allowances, giving the owner the flexibility of choosing finishes as work progresses. For example, they will set an allowance to the type of finishes you would like for cabinetry, appliances, flooring, etc. Managing the allowances is one of the most important aspects of construction and requires the owner to use restraint. Visiting show rooms to view cabinetry, appliances and tile is similar to being a “kid in a candy store”. Our job as contractor is to make sure that the owner is prepared and disciplined as they go through the selection process and stays within their overall budget.
This form of contract has the advantage of locking in the owners cost to build and takes the risk of inflation out of the equation. With good communication, cooperation and timely finish selections, the fixed price contract allows a more streamline approach to construction.
At Landmark Custom Homes we offer expert advice to help client elect the contract method that best suits their needs.