how-builders-price
After defining your goals and determining a budget  for your custom home, it’s important to consider different pricing methods. REA Homes breaks down the difference between FIXED PRICING and COST-PLUS pricing.

Fixed Price

The total price for your home will be set in advance and will not changed due to increases OR decreases in actual costs that are within the scope of the contract.

Cost-Plus

The builder will bill the client for all direct costs associated with building the home and then add a fixed percentage to cover the builder’s overhead and profit margin.

Fixed Price Advantages:

  • Price is often guaranteed. Buyers know exactly what to expect when the final bill is presented.
  • Unplanned INCREASES in costs are absorbed by the builder and not the buyer.

Fixed Price Disadvantages:

  • Total price will usually be higher than Cost-Plus as builders that use Fixed Pricing often “fluff” the price to cover the costs of increases that may or may not occur.
  • Unplanned DECREASES in costs are pocketed by the builder and not the
  • Some builders may cut corners in one area to make up for a cost increase in another.

Cost-Plus Advantages

  • Costs are transparent. Buyers will be able to see actual pricing and have confidence that the builder has used their budget wisely.
  • Decreases in costs are passed on to the buyer if the project comes in under budget.
  • Builders are less likely to cut corners as they don’t have to absorb the cost of doing things right.

Cost-Plus Disadvantage

  • Good builders will be able to provide an extremely accurate budget, but some builders will miss the mark leading to higher than expected final project costs.
  • Increases in costs are passed on to the buyer if the budget is not met.

For larger projects, those with budgets over half a million dollars, the Cost-Plus pricing method will usually offer lower overall costs and a higher quality finished project. For smaller projects and those with a very strict budget, it might make more sense to consider the fixed price method. Our advice to buyers is to choose a cost-plus contract as long as you trust your builder and prefer that the final cost be determined by the choices YOU make rather than those made by the builder.

Defining you goals and determining your budget are the first steps in building your dream home. With a clear picture of what you want/need your new home to include and how much you are able to spend, you can now start to focus on the next phase of the process… finding a suitable lot.

REA Homes builds their High Performance Luxury Homes℠ with the customer’s entire well-being in mind. To learn more about our custom built homes in St. Louis, MO, visit our blog or Facebook page.