The Building General Contract
Fixed Price vs. Cost Plus
Typically, are two types of contracts that can be used when entering into a General Contract to build a home; the Fixed Priced Contract or a Cost of Construction Plus Percentage Contract. Different builders and architects each have their own preference.
At Cricket Hill Homes we build using the Fixed Price option. We feel that determining a Fixed Price creates cost assuredness for both the owner and builder. We have provided an overview of both types of contracts to help bring better clarity to the options.
Fixed Price Contract
- A guaranteed price for the project is established at the start of the project
- Cash Allowances built into the contract allow for flexibility and savings
- Homeowner cost over runs and savings on the Cash Allowances are garnered by the homeowner
- Savings on the Cash Allowances are credited back to the homeowner
- Examples of Cash Allowances: Windows and Doors, Flooring, Kitchen/Vanities, Counter Tops, Millwork, Door Hardware, Tile
- A detailed Scope of Work and Schedule of Finishings are established at the outset to create a solid parameter around the contract.
- Price assuredness for both the Homeowner and the Builder
- Guaranteed price for the Scope of Work and Finishing
- Cost over runs are borne by the Builder
- Creates an environment whereby the homeowner and the Builder have to agree on all aspects of the Build at the outset. Thereby offering confidence and certainty at the outset for both parties
- Cash Allowances offer total flexibility of cost savings or enhancement of choice
- Payment plan is established and homeowner pays only for work done in a given period. Trades and Suppliers are paid directly by the Builder
Builder administers all aspects of the project.
- Cost savings and discounts are not negotiated mid-project
- Homeowner not in direct control of expenses or administration
Cost Plus Contract
- Builder charges an outright fee to build the project
- Project budget is set by the Builder and agreed to by homeowner at the outset; non-binding by either party
- Direct construction costs are either paid by the homeowner or are reimbursed by the homeowner to the builder, in which case builder pay trades and suppliers
- Builder charges a percentage fee of the construction costs, in addition to the Builder fee
- Homeowner is directly responsible for all cost of construction
- Any savings are garnered to the homeowner
- Homeowner feels in control of the administration of costs for the project
It is our belief that a well-executed contract protects both parties and offers a guarantee to the homeowner of what is to be built and at what cost. It remains our belief that restricting Builder ingenuity with a Cost Plus option can sometimes leave the Homeowner open to risk and can occasionally be a short-sighted avenue. The Fixed Price contract removes the complexities and hair-pulling from experience for the Homeowner, leaving the daily administration in the hands of the Builder.
The big question: How do you know that a Builder will adhere to the fixed price?
There are two ways to check for this, outside of the contractual agreement:
- The Builder’s reputation: ask real estate agents, community officials in the housing permits offices, etc.
- Verify with the Builder’s references of actual homeowners.