Two types of contracts are used by a home builder to price new homes. These two types are “fixed price” or “cost-plus”. You might be wondering which contract you should choose if you have never built a home before. We will show you both types of contracts so you can make an informed decision when building your next home.
Types Of Contracts Used By A Home Builder
Fixed Price Method
Fixed price home builders in Myrtle Beach will consider all costs involved in building your home. This includes overhead and profit. Then he’ll give you the final cost of the project. Your contract will reflect your final price.
Fixed price contracts offer the greatest protection against cost overruns. The custom home builder will have to absorb the cost if your project exceeds budget.
The builder is responsible for any cost overruns. However, this reverse process applies. The builder can keep any profit if your project falls below the budget.
This contract will only show the final price. It does not breakdown the cost of materials or labor.
If other areas of the project are beginning to absorb their profits, then more unscrupulous builders might try to cut corners.
The Cost-Plus Method
Although the cost-plus pricing model is more complicated, many buyers and builders prefer it to the fixed-price method. This method will show the builder’s profit and costs in your contract. A cost-plus contract is different from fixed price contracts. The final price for a home built can change depending on actual labor costs.
Transparency is the biggest benefit of cost-plus. You can easily see the costs and profits the builder charges, so you can determine if they are charging too much for the new home construction.
You’ll be less likely to over pay when your home is completed if the project falls within the budget.
The builder is not liable if the project is over budget. Therefore, he is less likely to compromise quality to keep his profits.
You will be responsible for paying more if your home construction project costs increase (or if the builder estimates poorly).
Unscrupulous cost-plus contracts can lead to disputes. If you believe that a subcontractor did poor work, will you be responsible for the home repair and maintenance costs?
Which contract type is best? It depends on you and your builder. Fixed-price contracts are preferred by some homebuyers, while others prefer to have their builders come in under their budget. Other times, the builder you are interested in working with might only offer one type. The best choice is the one that you are most comfortable with signing.
Call Dawol Homes now if you’re looking to build your dream home with the help of an experienced custom home builder.
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9404 Hwy 17 Bypass,
Murrells Inlet, SC 29576
Dawol Homes Sales Office
3100 Dick Pond Rd # E
Myrtle Beach, SC 29588
We build homes in: Cypress River Plantation, Waterway Palms, Waterbridge, Murrells Inlet, Collins Creek, Bellwood Landing, Carolina Forest, Plantation Lakes, North Myrtle Beach, Socastee, Surfside Beach, Pawleys Island, Litchfield Plantation