How does cost-plus building work versus a contract price ?
A. A contract price is usually understood to be a fixed price. You will often see this type of arrangement where a developer is building out a neighborhood with maybe 5 or 6 different basic home designs and offering some minor variations as ‘customer options’. Sometimes home buyers can ‘customize’ their homes by issuing change-orders which are then typically subject to a significant mark-up. If the scope of the project can be considered ‘set in stone’ then the advantage of a contract price arrangement is that the final cost for the homebuyer is known before starting the project. The disadvantage is that this approach does not allow much design flexibility for the homeowner as the home is being built. Contractors may build in a significant amount of ‘fluff’ into their contract price to help cover the unexpected. (so, the homeowner winds up paying for fluff! ) Keep this in mind: By its very nature, true custom homebuilding is typically subject to at least some changes of scope during the
