There are two types of construction contracts that can be written for building a custom home: fixed price and cost plus. A fixed price contract is exactly how it sounds. It is a fixed, or exact, amount that is given to you at the beginning of your custom home or renovation project which will be the cost to build or renovate your home. This type of contract is usually paid in partial amounts at certain milestones of construction, such as at slab pour and drywall hung. Any additional selections above and beyond what is included in the contract or overages in the budget will be an added cost to the homeowner in the form of a change order.
A cost plus contract differs in that whatever the cost of construction is, there will be an added fee or percentage for the custom home builder's overhead and management. You will know exactly how much everything costs throughout the project and will reflect your selection choices and finishes. This then eliminates any surprise costs at the end of the construction.