Advice on a Cost Plus Contract

13 years ago

Hi Everyone,

I am about to sign a contract to build a custom home. I wanted a cost plus, so that I could be involved in the decisions of the materials and subcontractors. My builder has agreed that I can review all bids and get my own if I want.

I want (need) to build a "healthy house" and am specifying low or no VOC products and products that are GreenLabel Plus certified, not so much for building ecofriendly (sorry) but for health reasons.

I am able to fund the project myself and will be buying some of the items directly such as appliances.

Should the "cost" calculation include the cost of appliances if I'm buying them? I know he has to get the house ready to accept them, but he has costs associated with that and I'm happy to pay him that. But the people who sell me the appliances are going to install them, not he or his crew. If I walk down that path, does he get the cost of draperies too?

Any advice would be appreciated.

Featured Answer

kymike

13 years ago

We are getting ready to build. Our architect provided us with a sample cost plus contract. One of the contract terms will be that if we pay for something directly, then the builder does not get his markup on that item. If the builder sources and pays for the item (even though we picked it out), then he does get his markup. You might find that your builder can get appliances at a better cost than you can, even after his markup. Just something to consider.

Comments (7)

dekeoboe
13 years ago
Why not go with a cost contract that has a fixed fee? That way he still gets his fee and you are able to supply items and control costs.
periwinkle18
13 years ago
We have a cost contract with a fixed fee. After the house was designed, we talked extensively about the types of materials we would have in the house (getting input from architect and designer), and my builder came up with the budget with some actual quotes, some allowance. There were items not included in the budget, like lighting. We tweaked it (took about 10% out), and then we based our builder's fee on this initial budget. Now that our build it underway, there are some areas where we are under budget, some areas where we are over budget, but we are still paying the same fee to the builder. It makes things much more relaxed between us.
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david_cary
13 years ago
Do the fixed fee. Otherwise you have the issues like the appliances. Obviously that is an easy item relative to the cost if you are doing high end appliances. So a builder would certainly want that cut unless specified early.

I built recently with a fixed fee and I think it really helped because there was no conflict when I bought my own lighting fixtures for example. Appliances were bought by the builder but we had considered putting them on credit card if we were close on avoiding a jumbo mortgage.

If you do a cost plus, just spell things out ahead of time which in all fairness probably means he gets a cut of things you buy.
bevangel_i_h8_h0uzz
13 years ago
I don't see why a contract (cost plus or fixed fee) has to include the cost of appliances. IMHO appliances are NOT part of the house anymore than draperies or the television set are. In fact, we chose to buy our appliances separately rather than add them to our mortgage because appliances typically wear out and need to be replaced long before the mortgage is fully paid off. It is not sensible to still be paying on these things long after they're worn out!

In your case, just tell your builder that you will be purchasing the following list of appiances and installing them your self and that they are not to be included in the contract. You will provide him with necessary information regarding water/electric/gas lines and the sizes of cabinetry opening necessary.

If you're doing all the work of finding and purchasing the appliances and waiting for their delivery, and the appliance provider is doing the installation, why should builder get a percentage? He gets paid for running gas/electric/water lines to the appropriate locations so the appliances can be installed.

Doesn't make any more sense that he should get a percentage of the price of the appliance than that he should get a percentage of the price of your TV, stereo system, electric toothbrush, just because you're going to be plugging them into the wall! IF he is going to be advising you on your selections, doing the ordering, waiting for installers to arrive, supervising installation, AND dealing with any issues that should arise if one of the appliances goes on the fritz 6 months after you move in, then it would make sense that he should get a percentage. Otherwise not.
robin0919
13 years ago
bevangel....appliances 'are' part of the house. Can't get a CO without them. I would still go with a fixed fee.
Wayfinder
Original Author
13 years ago
We went fixed fee.

Thanks everyone!