There are two different contracts you can make with your builder. One is a cost plus contract, the other is a fixed price contract. Both contracts have their benefits, but they are very different. It seems like a lot of people don’t really understand the differences between the two kinds of contracts, so I thought we could talk about them here.
A cost plus contract is exactly that, the cost of building your house plus a percentage for the builder’s profit. In this contract you can see exactly what everything costs, and exactly what we make on each line item. The good thing about this contract is that if you are able to save money then your overall number will go down. With this contract, you determine how much you spend or save. The thing that customers dislike about this contract is that the number you’re originally given by your builder is not necessarily where you end up. If you spend more, or if things cost more, then your total price goes up.
A fixed price contract is when your builder gives you a number, say $350,000, and you know that is what your project will cost. The good thing about this type of contract is that you know for sure what you will be spending on your project. If the price of lumber goes up, that’s something your builder has to work out. Your total price will still stay the same. The things customers don’t like about this type of contract is that if things cost less, your price stays the same. You won’t be saving any money on this contract. The price is “fixed” just like the contract says.
Often times our customers try to get the best of both worlds with their contracts. When they have a cost plus contract, and things cost more, they want us to keep the price the same. With a fixed price contract, when they save money they want the price to come down. Unfortunately, that’s not how it works. You can’t have a mix of both contracts, its either the one or the other. This is the standard in construction nation wide.
At Jorgenson Builders we work with both types of contracts. There are projects that work better with a cost plus contract, and there are projects that work better with a fixed price contract. When we meet with you we’ll talk with you to help you decide which contract will work best for you and your project.