I'm in the initial phases of designing, then building a custom home in the Hill Country. Was curious if any builders are offering a Cost contract. If not, what is a typical Cost Plus %?. And are Cost Plus %'s negotiable with the builder?

Jagman83 said:

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I'm in the initial phases of designing, then building a custom home in the Hill Country. Was curious if any builders are offering a Cost contract. If not, what is a typical Cost Plus %?. And are Cost Plus %'s negotiable with the builder?

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My higher-end fully custom builder normally would only do a cost plus % contract. Knowing the cost is almost always greater than the estimates/bid and that my wife would go crazy once in the process....I talked him into a cost plus fixed fee contract. It ended up saving me about $30,000 vs. a fixed % and didn't require any significant incremental effort on his part.

What are custom builders building at in intwon Houston or Dallas ?

I just finished a custom build in the north part of the hill country. We started during all of the pandemic mess and at the time I couldn't find any custom builder doing anything other than a cost plus. With a custom build taking 12-18 months or longer to build plus the inflation spikes on the supplies there were too many variables for builders to lock in a fixed cost so cost plus was the norm. I guess I could have been given a fixed cost but I assume the builder would have marked the numbers way up to cover any contingencies. Mine was cost plus 10% on builders fee. Many builders closer to the metroplex were wanting to charge 12-15% but I couldn't find anyone willing to do it for less than 10%.

Good luck on your process but there is no way I would ever do this again.

Fixed fee w/allowances on ours in Houston was 13%.

Depending on the area hill country is around 18 to 25 percent depending on service provided and money fronted.

If you want fixed rate you could probably add 10% to those numbers.

Oh, and add to this I've met a few guys charge 30 for cost plus too.

Lastly, everything's negotiable if you're willing to walk away.

What do spec builders in town make on a % for investment. Think Oak Forest/Memorial Houston or Lakewood etc. in Dallas.

Howdy Ag! I'd be interested in speaking to you about the potential of building your home. Please send me an email to thompson (at) JosephCreekHomes.com

Please also checkout our website to learn more about us. We build in the Hill County and surrounding communities of San Antonio

Friend here in PA is doing a fairly large addition ($300k) and builder is cost plus 13%. Friend was fine with that.

However, several portions of the job are very poorly managed. While my friend had a good excavator, good framers/exterior, and good electrician, the detail work like stairs, landscaping, molding were so-so, job site was very messy, and cabinetry (a LOT) was a complete disaster. Much of this can be attributed to a lack of attention to detail, not taking notes, and poor communication. The GC was there for 15 minutes per day and his wife who was the 'designer' had no skill or practical input.

The moral of the story is that cost plus and its percentage can be a good way to go. But what are you getting for that percentage?

Either way you go, having a conversation with the GC about expectations (when does work start and end, how many days per week, the overall calendar, what hours can communication with them occur, weekly/daily meetings, warranty, etc.) goes a long way.

And change orders! First, they will occur. Second, the more details you work out in advance, the fewer you will have. That depends heavily on planning, whether it is you, an architect, or a good designer. If you are not really familiar with construction, having qualified/paid 'help' is usually worth it.

Change orders can devastate you. One GC I worked several jobs with years ago always underbid by 10% his lowest competitor. He then whacked people hard with change orders. In the end he was more expensive as the highest estimate.

Where at in the Hill country are you building?

Saltwater Assassin said:

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Carnwellag2 said:

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cost plus contracts don't have the builder looking out for best interest.

It benefits the builder for the quotes to come in high!

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I respectfully disagree with this sentiment (as a custom builder).

We do cost plus flat fee contracts, meaning our fee is fixed from the beginning. The fee does not increase unless additional scope is added (things like pool houses or additional square footage. NOT material cost increases or overages on allowances, those are billed as straight pass through costs with no markup). Our books are open, meaning the client can see every check we write if they desire. Our company is not an anomaly in this regard, there are plenty of other builders that use the same model, primarily in the higher end custom home game.

This is just my opinion, but this contract delivery method is the best case for all parties involved. It gets everyone on the same team with the goal to build the best quality home for the best price for the client.

I understand the hesitancy to trust builders, too many builders operate the way you described, but there are plenty of us that just want to build a quality house and make our clients happy. We like clients waving with all five fingers when we complete a job.

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What you just described is the contract I used for my 2021 fully custom build. Fixed fee (not percentage) and I was able to review every single invoice in support of draw payments. This was during COVID and the builder did a great job of holding the subs and suppliers to their prior bids. He really went to bat for our check book with no financial benefit to himself. I've built other custom homes and this was by far the better way to go.

I wish we'd gone this route.

I finished one in Bee Cave last May......We had some fixed cost (foundation, site work, etc) and then everything else we had an allowance on, which is basically cost +%.

Looking back there was WAY too many things listed under the "allowance" that should have been fixed. And virtually everything was bid 10-30% less than the actual cost.

The frustrating thing was we would have planned our house different knowing what the true cost to build it was. Once we were in it and started finding out actual costs when bids came back it was too late to make wholesale changes.

My advice would be to questions allowances for everything and make sure you all are on the same page with what you want compared to how they are bidding the different trades.

The Silverback said:

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The frustrating thing was we would have planned our house different knowing what the true cost to build it was. Once we were in it and started finding out actual costs when bids came back it was too late to make wholesale changes.

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This was our experience. We endured a covid build, so it was a stressful time to say the least. The builder puts out a quality product but his estimate was crap and communication was crap. I would have at least tried to modify it from a pure cost plus to cost plus fixed fee. Thankfully as lumber was skyrocketing, he did not charge any additional fee above his estimate, which we did appreciate. Fee was 10% which he even hinted at was low.

Cyp0111 said:

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What do spec builders in town make on a % for investment. Think Oak Forest/Memorial Houston or Lakewood etc. in Dallas.

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I would guess in the 5-15% range. Maybe 20% if they run a really tight ship.

I'm involved in lots of Hill Country builds. Most custom builders are in the 14% to 18% range with a guaranteed minimum build fee on the pre-closing budget/bid proposals.

I got a contract in today for a build in Houston with a 23% builder fee.

Please tell me it's at least a very complicated, ridiculous home to justify it?

Based on the cost I would say not.

Sal****er Assassin said:

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Carnwellag2 said:

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cost plus contracts don't have the builder looking out for best interest.

It benefits the builder for the quotes to come in high!

---

I respectfully disagree with this sentiment (as a custom builder).

We do cost plus flat fee contracts, meaning our fee is fixed from the beginning. The fee does not increase unless additional scope is added (things like pool houses or additional square footage. NOT material cost increases or overages on allowances, those are billed as straight pass through costs with no markup). Our books are open, meaning the client can see every check we write if they desire. Our company is not an anomaly in this regard, there are plenty of other builders that use the same model, primarily in the higher end custom home game.

This is just my opinion, but this contract delivery method is the best case for all parties involved. It gets everyone on the same team with the goal to build the best quality home for the best price for the client.

I understand the hesitancy to trust builders, too many builders operate the way you described, but there are plenty of us that just want to build a quality house and make our clients happy. We like clients waving with all five fingers when we complete a job.

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okay, I want YOU to build my custom home. Do you build in CS? We're a few years from building but I want to be able to work with an honest builder.

GeographyAg said:

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Saltwater Assassin said:

---

Carnwellag2 said:

---

cost plus contracts don't have the builder looking out for best interest.

It benefits the builder for the quotes to come in high!

---

I respectfully disagree with this sentiment (as a custom builder).

We do cost plus flat fee contracts, meaning our fee is fixed from the beginning. The fee does not increase unless additional scope is added (things like pool houses or additional square footage. NOT material cost increases or overages on allowances, those are billed as straight pass through costs with no markup). Our books are open, meaning the client can see every check we write if they desire. Our company is not an anomaly in this regard, there are plenty of other builders that use the same model, primarily in the higher end custom home game.

This is just my opinion, but this contract delivery method is the best case for all parties involved. It gets everyone on the same team with the goal to build the best quality home for the best price for the client.

I understand the hesitancy to trust builders, too many builders operate the way you described, but there are plenty of us that just want to build a quality house and make our clients happy. We like clients waving with all five fingers when we complete a job.

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okay, I want YOU to build my custom home. Do you build in CS? We're a few years from building but I want to be able to work with an honest builder.

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I'd like to talk to you too about a CS build.

GeographyAg said:

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Sal****er Assassin said:

---

Carnwellag2 said:

---

cost plus contracts don't have the builder looking out for best interest.

It benefits the builder for the quotes to come in high!

---

I respectfully disagree with this sentiment (as a custom builder).

We do cost plus flat fee contracts, meaning our fee is fixed from the beginning. The fee does not increase unless additional scope is added (things like pool houses or additional square footage. NOT material cost increases or overages on allowances, those are billed as straight pass through costs with no markup). Our books are open, meaning the client can see every check we write if they desire. Our company is not an anomaly in this regard, there are plenty of other builders that use the same model, primarily in the higher end custom home game.

This is just my opinion, but this contract delivery method is the best case for all parties involved. It gets everyone on the same team with the goal to build the best quality home for the best price for the client.

I understand the hesitancy to trust builders, too many builders operate the way you described, but there are plenty of us that just want to build a quality house and make our clients happy. We like clients waving with all five fingers when we complete a job.

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okay, I want YOU to build my custom home. Do you build in CS? We're a few years from building but I want to be able to work with an honest builder.

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Howdy sir

Unfortunately we dont go quite that far, but thanks for the kind words.

But I will say that, while our approach is not the norm, it's also not a total outlier. Many quality custom guys will do a flat fee contract if you ask them too. With a true custom builder everything is negotiable (including contract terms).

If you need any help feel free to pm me; id be happy to chat with you sometime so that you are as informed as possible going into your builder search.