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Custom home: Cost plus or flat fee

2,245 Views | 11 Replies | Last: 5 yr ago by MAS444
Big12Champ06
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We own the lot outright and are trying to decide which would be better for us. Our budget is 500k for the build. I don't know much about either, but it would be nice to benefit if our selections come in under budget. What are your thoughts on a reasonable %? We are in College Station.

TIA!
PFG
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AG
I'll share my experience and see if this helps you:

We bought some property.
Hired an architect and designed a home.
Spoke with and interviewed many builders.
Narrowed it down to 3, and asked all 3 to bid the plans.

In the end, we chose our builder based off his qualities, not cost-plus vs flat fee. And I would recommend the same.

Now that I'm 3 months into the build, I'm really really happy with our choice because I trust him, and I trust his right hand co-GC. They are in constant communication with me, always on site, walk the site with me, answer all my questions no matter how dumb they are. Its nice to lay my head down at night knowing the home we spent years designing will be built like I want it built.

So thats my recommendation. Forget how its priced. Choose the builder that you feel the best about AND has the communication style that fits your personality needs.

Ours happens to be cost-plus. I find it to be very fair. I knew up front what his +% was, I see every invoice, those all go to the bank for draws. There are differing opinions about the cost-plus method, but I'm very satisfied. That said, he could have been flat fee and I wouldn't have cared. That didn't factor into my decision, and I don't think it should. When your in the depths of building your house, you'll care WAY more about good comm, and way less about how he's getting paid.
PFG
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AG
Forgot to add - our CG is 12% cost plus.

This is the TX Hill Country on raw, rural property.
Big12Champ06
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That's great advice. I think we've decided on the builder. He can do either fee structure so we are wondering the trade offs.
PFG
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AG
Quote:

He can do either fee structure so we are wondering the trade offs

Hmm. Thats interesting. Not calling it a red flag, but I didn't run into any builders that would let me pick how to price the build. I'd have some questions about that. At the least - speak with multiple others who have used the same guy, and ask them about their experience. If you want to go next level - speak with the financial institution. If you're using a local build, and your bank/lender is local, its likely that the lender will know the guy and can back up his reputation on the finance side.
leanderag82
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AG
I'm a builder.......If I were a new custom home buyer, I would never do a cost plus contract. Builder would have no motivation to save cost,...the more you spend the more he makes.

Do your homework up front. Get with the designer and make all of your selections and finishes selected up front. Have a set of well defined specifications and make the builder(s) give you a fixed price based upon your plans, specifications and selections.

PFG
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AG
Quote:

I would never do a cost plus contract. Builder would have no motivation to save cost,...the more you spend the more he makes.

There's another side to this:

The less you spend, the less he makes.

As the client goes through the process, they sometimes find ways to cut back, reduce costs, etc. Now the client saving money. With a flat fee...do I think a builder is going to back off the flat fee he gave me if I pull some finishes out of the bid? Nope. And the builder is probably going to charge me change orders on top of it.
JP76
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Except in the real world you rarely see a true custom new build come in under due to all of the change orders along the way. On fixed if the bidding builders are concerned about materials increasing then your fixed bids are going to be padded higher to CTA. With cost plus you open your self up to materials/labor increases from external factors such as hurricane related demand or potential tariffs etc. For new builds and remodels I prefer to charge a flat fee with change orders being cost plus.
MAS444
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AG
The builders I know say it's better for owners to do do flat fee.
hillcountryag86
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AG
If you do a flat fee, make certain you understand every detail about the house. A flat fee can be an incentive for the builder to cut costs by using lesser cheaper, less-quality materials. Both cost plus and flat fee have disadvantages an unscrupulous builder will take advantage of.

PFG is right. Get to know your builder, make sure you have confidence in him.
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leanderag82
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AG
Sasappis said:

MAS444 said:

The builders I know say it's better for owners to do do flat fee.


It depends on the level of plans. The better the plans the more likely flat fee is better.
Good advice! Architectural Plans should have detailed cabinet elevations. Detailed electric plans. Detailed cross sections. elevations should be specific on materials. Foundation/roof framing/wind bracing plans should all be done by registered engineer and be site specific.

You should also have a detailed set of specifications that, at least, establish a set level of included items/allowances.

Be careful on the allowances......do your homework & make your selections up front. This will help you avoid sticker shock when you go the the lighting showroom/flooring gallery/appliance store. Ask the builder supplier about builder grade options, for basic items, rather than brand names.

MAS444
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AG
Absolutely.
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