I've got a builder friend in Texas with a 40-year reputation. He's all cost-plus and only builds in a certain area for wealthy clients. He wouldn't dream of bidding. You have to get a referral to meet him; he doesn't just work for anybody. He just turned 75, so he's only got a few more houses left.

This is the kind of builder you want, but you're so consumed with price you don't know it.

Of course you are consumed with price. Most people don’t have endless budgets and they want to feel protected and safe with their choice. Building is challenging and finding a person you trust to support you is also hard. Sometimes I feel folks on this site forget the financial realities of most people who grapple with a build. We built a custom home in a lot we owned in 2016-2018. In our area our budget for a new build was definitely seen on the lower side but we thought with careful planning it could be done. I think we did a good job of finding a builder who got us and figuring out many things. If I am being honest a lot of it is going with your gut. We met with several builders and some were design/build and there were a couple we got an icky feeling from immediately. Not able to accurately answer questions and kind of shady feeling. Our builder took an interest in us, attended meetings with our designer and supported the design process too and showed us homes they had built. It still wasn’t perfect and parts were frustrating but we put no money up front. Everyone we met with we asked for the same thing. A general conservative cost of what it would be to build on our specific site meeting our size house etc. An example of a budget from a previous build that showed expected costs vs actual costs. Then we went through them with each builder and asked how overages were dealt with etc. No idea if this helps or not!

Also there is no good deal. There is the price you are willing to pay for the house you want built and the relationship you want with the person doing the job and how you want to navigate any issues. It is never a deal. Never.

As a licenced builder, we've built homes for a fixed price. Never doing that again as costs are impossible to predict nowadays!

Later we went with a simple management contract: a fixed fee for supervision, and an initial estimate of costs. Inevitably, costs were higher as the owners wanted upgrades all along the way, let alone the unexpected challenges that arose dealing with uncertain soil conditions and weather.

Now finishing up our own budget busting build. And the "extras" that mrs. worthy insists on!

Talked to a number of architects in your area. It may give you more comfort selecting a builder or a better perspective on what a "deal" is.

Builders aren't there to give you the "best price", they are there to make a living/profit.

We interviewed two builders in the area we were building and spoke/met with a couple of their customers. Meeting with recent customers was the best way to get a good feeling for how the build would go. I chose the builder that would be open to working with an involved homeowner and had slightly more upscale builds.

We used an architect to design our custom plans and then got very rough guesstimates on what it would cost to build the house from those two builders. Our decision was not based on the numbers they gave us, but on the relationship we would have during the build.

It was cost plus and our final costs were 40% over that initial guesstimate.

Someone in my neighborhood is building a new house and I got a chance to see their builder's bid. When they are done in a few months their total cost is going to be double ours for a smaller house with lesser finishes. So roughly, in my area, the costs to build a custom home have doubled since we built 4 years ago. Part of that overall increase in cost is that land values have also gone up quite a bit. I wouldn't feel comfortable paying today's costs, land and build, for our house. Crazy!

Competence and trust are the two most important factors in choosing someone to do any work on your home, whether it's a small room renovation or an entire new build. Price is definitely important, because of course not many of us have unlimited budgets. But choosing based on price alone, and getting a good "deal" is a surefire way to opening the project up to lots of problems and angst.

When we built our vacation home, we went with a builder who was recommended by a friend who had recently used them. He had an architect on staff that we worked with to design the home. This firm was not the most expensive in the area, but it fit our budget. Is the house perfect? No, but it's been over 30 years and we've gotten a lot of enjoyment out of it.

We've done MANY renovations on our 1920s era primary residence, again, we also used contractors recommended by friends and our architect. There's so much to be said for relying on trusted friends and family for quality contractors.

If you are that hyper-focused on cost, buy a tract build. Or an existing home. Don’t build custom. You will easily pay 1.5x what a tract build costs for ”the same” house. You have to be enthusiastically willing to pay more for the ability to customize your home. If you aren’t willing to pay that extra, you will be a terrible client to any builder, and the entire process will make you miserable.

Hard disagree. You do not enthusiastically need to be willing to pay more. You are paying to customize and get what you want and aspects of that may cost more but it absolutely all shouldn’t and there is no problem with still being mindful of costs. It doesn’t make you a terrible client to want transparency, communication, and a clear understanding of where the project is going and what it will cost. These are all reasonable expectations.

I think that Charles Ross Homes gave you a very honest and detailed response. Frankly, if I were building in the Richmond/Williamsburg area of Virginia, I'd seek out Charles Ross Homes in a hot minute!

Couldn't agree more @Diana Bier Interiors, LLC. And I appreciate your input as well. If willing, please post a pic of your 1920s home. We're going for something more retro style than what you normally see.

I am building a home in a fairly rural area and did not have a lot of choice of builders. I hired an architect to design the house and asked 3 builders to price the project, we supplied allowances for electrical fixtures, appliances,etc., so that the comparison would be “apples to apples” . They were good “rough estimates” . They all arrived at a very similar cost to build, my architect looked over the bids and compared the prices to other current projects he was involved in, and weighed in on the reliability of the subs/suppliers being used. The big difference in the price was that amount the builders were willing to do the project for.
Two of them were cost plus with no upper limit, and the third one offered to do it for a fixed fee based on his estimates. Knowing that we will be over estimate due to pricing fluctuations, we really appreciated that at least our builder’s fee is fixed, he has no reason to pad the bids to add more to his bottom line.
Fortunately, we also got a much better vibe from the fixed fee builder, and he had excellent recommendations, as did one of the “sky’s the limit” fee builders. He as also working on houses which had many of the features we had in our design, so we knew that his subs had the competence we were expecting.
However, as expected, we have had a couple of line items that have gone over budget, and we know to anticipate more. The builder cannot control window price increases etc. There is no “deal” to be had in building right now. Financially it would be much more prudent of us to have just bought an existing house, and even renovated, rather than build. For several emotional reasons we have forged ahead anyway.During a site meeting with our architect I mentioned a surprisingly large overage, and the architect told me that all of his clients are facing the same thing. They are not happy, but have to pay.

Based on some responses (all appreciated!), I think I may not have been clear initially. I'm not consumed with price, or looking to get a custom home at a tract home price. In fact I'm more than willing to take on the price risk for materials and labor. Sure, I don't want to overpay, because every dollar I save will one day go to my kids. What I'm running into that I'm sure wasn't clear in my original post is that the fixed price builders are NOT sharing what their overhead and profit is. @Charles Ross Homes picked up on that, and why I'd love to work with someone like that. A comment that a builder made was "When we give you a fixed price, all costs are covered, and we are taking the risk. Our overhead and profit are not something we share."

I'm trying to avoid paying a design/build firm to get to a contract ready price (and paying them $5 to $10K to get there), and not knowing if I'm getting taken to the cleaners because they don't reveal their overhead and profit....I just get a final fixed price number. And unless I want to go through the same exercise with another builder, I've got no basis of comparison. @WestCoast Hopeful echoed my sentiment that being mindful of costs is only prudent. The difference between a 15% OH&P versus 25% on a million dollar home is $100k. That's not chump change to me.

With a fixed price does it really matter what the builders OH&P portion is? As long as you agree on the final/fixed price, why do you care how much the builder took as profit?

If you don't want to pay the builder to take on all the risk (remember covid and the crazy and constant price increases), then just go with a cost plus contract.

We didn’t opt for fixed price because we wanted full transparency. All builders do their billing differently too so ask to see how they do things.

Hey Joe, here are a couple of photos of our home. I don't have any right now showing the addition on the right but I'll see if I can find any.

@chispa I'd be okay with fixed price, if I knew what the OH&P was, so that I could compare against other builders, but I'm not getting that from some of the ones that I've talked to. And those that do fixed price only do fixed price, no cost plus. At least the ones I've talked to. I've been hoping there's a way to work with these firms, because they are highly rated, but the guidance here is leading me to cut these out and just look for full transparency firms like @Charles Ross Homes.

@Diana Bier Interiors, LLC she looks like a grand ol gal....reminds me alot of the homes like my mother grew up in in Illinois.

I think the lack of transparency is what you get for fixed price. If I am a builder, I'd say it's "nonya" business. If I am committing to a number, that's your benefit. My benefit is that a better managed project, or one with lower costs / better negotiated costs will improve my bottom line.

Cost plus says I will make x% and that's realiable for me. In exchange for that, I open my books.

There's incentives at play for both. And either one can work, or be a disaster.

Realistically you get one or the other, "Fixed Price" or "Full Transparency", not both.

LOL. Full transparency isn't all that transparent.

It's spelled "kickback." Sub-trade submits their invoice and receives payment. Then pays a portion back to the builder/ general contractor. And you'll never know the difference. We only knew of some specific cases when the general contractors couldn't help bragging about their scores to fellow builders.

If someone has some kind of side agreement like that, it is none of my business. If I get a copy of all the bills and am happy to pay them and think they are fair and reasonable that is enough. We got invoices for every single thing ordered and every hour worked on our project. Could we account for every nail or screw or piece of copying, of course not, but it builds trust and transparency when things are shared. I wouldn’t change the like to think that most people are trying to make a somewhat honest living. They deserve to be paid for their time and expertise and aren’t trying to rip people off.

Worthy, I didn’t even want to mention the “K” word! In fact I removed it from my last post. The last time we built a house we negotiated a ceiling to the absolute $ amount of the “+”. The builder agreed that the amount was fair, it allowed for some cost overruns, but clearly he didn’t like it, because after we had to fire him, the amount of the kickbacks he was getting was astounding. (We were able to get them during discovery as we had to sue him..) He was determined to run the cost up, and thus his fee as quickly as possible in the early stages of the build.

^^^ this is why I have trust issues

Good advice already - Agree it is really hard to understand potential costs - (we are wrapping up a vacation build and have been happy with our team although the process is stressy as we are a few hours away) We narrowed down our builder choices to two based on recommendations from folks in the area. Then decided our final choice based on interviews - one asked us tons of questions and toured us thru similar houses that they have built. The other team was clearly a high quality builder but spent our time together talking about the 10 bath house they were building in the area (meanwhile we wanted a cottage) - agree that gut and overall ”fit” plays a part. We’ll be about 5% over when all is said and done (and I can’t wait to be done)

Oh, my number one advice is that even if you have the money/cash on hand to pay for the build, do not, I repeat, Do Not do a cash build or tell your builder you could do that!

Get a construction loan so that you have a middle man, with skin in the game, between your money and the builder. The bank will do inspections and only write checks when certain milestones have been met. Builders tend to have a harder time pushing banks to release funds too soon and/or too fast.

I pushed this recommendation on some friends who built after us, with a different builder and they thanked me several times during their build when issues came up. They worked with the bank to force the builder to stick to the contract. They truly hated their builder once the build started. A local very large production builder, with a luxury/custom division, that doesn't treat their higher end customers very well once the contract is signed. My friends had no choice since that builder owned one of the last undeveloped lots in our neighborhood.

@chispa, will have a construction loan out of necessity, but hadn't thought about them having skin in the game...how that keeps some guardrails around the contractor. Good point.

The bank will do inspections and only write checks when certain milestones have been met.

On a management build we did, the client's bank repeatedly disagreed what stage the build was at. So they refused to advance funds. I ended up shutting down construction till they arranged financing with a different institution.

Working with a bank can indeed provide an additional level of protection when building a custom home, and you'll pay the bank interest and fees for that. An alternative, for anyone self financing a build, is to hire both a construction inspector and a mechanic's lien agent and have both sign off prior to each progress payment and the final payment.

@Charles Ross Homes good points. I've given some consideration to hiring an inspector but had never even heard of a mechanic's lien agent.

A good deal is a good deal for all parties involved and can have absolutely nothing to do with pricing alone. At the end of the day, if everyone is happy and everyone makes money and you can shake hands at the end, it is an all around good deal.

Since I am never building again... but because I do too much contracting at work - should there be a dispute resolution clause in homebuidling contracts that is agreed up front? (or are they already part of larger builders' standard t's and c's?) It feels like a process with an agreed third party might be a decent safety net if there is a disagreement that can't be resolved and you don't want to threaten legal action.

I decided to just ask the builder I had been leaning towards how an owner is supposed to compare builder’s costs in this scenario and he hasn’t responded to my text of over a week ago. Which gives me further concern that this practice, where you pay thousands to get to a design and fixed contract price, really is like getting you “a little pregnant”. You’ve really got no option to go elsewhere because of the seed money (pun intended).

" decided to just ask the builder I had been leaning towards how an owner is supposed to compare builder’s costs in this scenario "

You do this by getting 3 quotes from your full set of drawings and all your selections. You do not compare his costs, you get the selections all made and the 3 builders all price apples to apples.

If you want "quotes", you have to pay for full design documents up front. That's an expensive process, and involves much more than an architect on your design team. You will never ever be able to compare like to like otherwise. Not a "drafted floor plan". FULL design documentation. Which brand and size of windows? Which floors? Which shower floor grate pattern and in what color? What type, brand, wattage, Kelvin, and CRI of the light bulbs? Hundreds of pages of finish specifications.

No one can accurately quote paper napkin thoughts and prayers.

By the time you take the year or so to design and write out the complete scope and full documentation, codes will have changed, your ideas will have changed, and things will have been discontinued. This is why contract language uses "functional equivalent" and also has allowances. On the fly substitutes are a constant in construction. The builder issues a RFI to a supplier to send over the specs to the specifying architect, who OK's the substitution. It's not a 5 minute process. That type of commercial level paperwork is darn expensive, darn paperworky, and time intensive. Which is why it's little used in residential construction.

This is why Cost Plus is the default contract type for a custom build. Never Fixed Price. It takes some elements of commercial, in that the plans are more planned, and more design heavy, but retains the flexibility of the spec builder. If that "perfect" floor that you built your design around has become discontinued, you have some idea of the price point of what you'll need to be choosing for it's replacement, ASAP. If you had a 10K of a Group C granite budgeted as a place holder for your counters, and you fall in love with a quartzite that is 4x as much, then you get charged for the 40K quartzite. Or, if you decide you can't decide, and to do 3K of laminate to put off the decision down the road, that's what you pay. +- the builder's 25% of course. You know exactly what the builder is making, because a Cost Plus contract is transparent on every single cost. It's not a Fixed Price, where most of the contract is none of your business, and a builder will fire you if you try to make it yours.

Take baby steps. Most architects design a home in three phases; schematic design, design development, and construction drawings. Engage an architect and get cost estimates at the end of each phase. The design and the cost estimate will guide you to adjust the design or your budget at the end of each phase.

Ask a few builders, that you feel may be a good fit, to give you estimates on each phase and compensate each one for thier work in coming up with the estiames. By the time the construction drawing are completed you should have a good idea of which builder to go with.

Know that "estimates" are different than "bids".

Use a similar technique with design/build firms.

Now start the discussion, "How To Choose An Architect To Know I’m Getting A Good Deal?"

In my experience, the cost of structured wiring, and the majority of home automation is a small percentage of the overall construction cost and has been trending down. Like less than 2% I've never had a problem integrating automation during construction, albeit my experience is limited to 27 years of custom home building and remodeling.

ETA: The above comment was in response to a somewhat self-serving, advertising-like comment by Heyo Smart which has since been deleted.

An estimate let’s the homeowner know if they are even in the realm of reality though. It is a useful tool. The idea that someone needs to design a home and then bring to a builder before even getting a sense of if they can afford it is wild. Prices also vary greatly from place to place. There are so many variables