Embarking on the journey of making your home a reality can be challenging and exciting. Often, building your dream home demands a thoughtful and methodical approach. As seasoned experts with more than five decades of award-winning expertise, Linwood Homes understands that costs are a major factor in your decision to move forward with the custom home building process.
When it comes to construction contracts to build your home, there are two main options to homeowners – fixed price or cost-plus contracts. What is right for you depends on what you value in your construction experience.
Pros & Cons of a Fixed Price Versus a Cost-Plus Contract
Cost Plus Contract: Cost plus contracts is the most common in construction. In a cost-plus contract, the general contractor (GC) takes each invoice charged on the project and then marks the invoice up by an agreed upon percentage, usually 15 to 20%. The client then pays the base cost plus the GC’s percentage - hence the name.
Cost plus contracts have a high degree of transparency as the client sees each invoice through the project. They are also good for clients who want to have maximum flexibility through the build and frequently want to change their mind on features and materials of the build.
The downside of cost-plus contracts is that the client bears all the risk associated with inaccurate estimations or prices changes throughout the build. Because the GC does not have to provide any guarantee of the cost upfront, they will simply estimate a client’s projects in wide cost per square foot ranges. This can leave some clients in uncomfortable financing challenges if a portion of the build ends up being more expensive than was originally estimated.
Fixed Price Contract: A fixed price is exactly what it sounds like. The price is set at the start of the project by the GC and will not change for the period outlined in the contract. These types of contracts are rarer as they require much more work and accurate estimation by the GC prior to starting your project.
Fixed Price Contracts are valuable for homeowners who want peace of mind and predictability during construction. As long as the General Contractor is credible and knows his/her costs then the client gets significantly more assurance that their project will be completed based on the budget outlined in the contract.
Fixed Price Contracts do often require more planning and discussion up front with your GC to ensure that specific features and materials have been chosen and priced accurately. This can appear to slow the construction process down at the beginning, but once a contract is in place, the GC is incentivized to build quickly to minimize the risk of his/her committed contract costs changing.
The downsides of Fixed Price contracts is that they are less flexible than cost plus with client changes typically being processed via a written change order, where in a cost plus they are typically just handled verbally. If the client makes many changes this can slow the build down, but it does provide a documentation to support what decision has been made at what price should any disputes between GC and client arise.
Linwood Homes’ Approach: Linwood Homes, with its long history in building, favours certainty for its clients offering a fixed price contract with allowances for areas of the build where clients like making choice, like interior finishing. By guaranteeing its pricing, Linwood is better able to give its clients a smoother build experience with peace of mind, even if it takes a little bit more planning time upfront.
Linwood is able to get the best pricing through its size, having volume purchasing power for materials, joined with its strong network of loyal trades working exclusively on Linwood Homes’ client’s projects. Its size and history are what allow Linwood to offer fixed price contracts, which are especially rare in recreational markets.
With a fixed price contract and an upfront schedule, homeowners can breathe a sigh of relief that their new home is going to be built on time and most importantly on budget.
Building your home is a significant financial investment that is both personal and life changing. When looking into General Contractors for your project make sure to choose the right contract type for you and your home.
If you have any questions – feel free to visit the Linwood Homes website or give us a call and we’d be happy to discuss your project in detail.
