Cost-Plus vs Fixed-Price Construction
One of the most important decisions when building a custom home is how the project is priced. Understanding the difference between cost-plus and fixed-price construction helps set expectations, reduce surprises, and create confidence before construction begins.
Understanding the Two Pricing Models
Both cost-plus and fixed-price construction can be appropriate depending on the project, how much is defined up front, and how decisions are made throughout the build.
Cost-Plus Construction
In a cost-plus structure, the homeowner pays the actual cost of construction (labor, materials, and subcontractors), plus a builder fee. This approach emphasizes transparency and flexibility.
Fixed-Price Construction
In a fixed-price contract, the builder delivers the home for a set total price based on plans, specifications, and allowances. Changes are typically handled through change orders.
The Real Goal
The goal isn’t choosing “the best” contract type—it’s choosing the one that aligns with your expectations, your decision process, and how risk is shared during construction.
Neither approach is “right” or “wrong.” The most successful projects are defined by clarity, communication, and alignment before construction begins.
Key Differences to Consider
These are the differences that affect the homeowner experience most—especially in fully custom construction.
Cost-plus allows decisions to evolve as details become clearer. Fixed-price works best when most decisions are finalized before construction begins.
Cost-plus typically offers more visibility into real costs. Fixed-price rolls costs into a total number, which can feel simpler—but offers less line-item clarity.
In cost-plus, pricing reflects real-time conditions and scope. In fixed-price, the builder prices risk in up front—and scope changes are handled through change orders.
In fixed-price builds, change orders are more common because the contract is built around a locked scope. In cost-plus, changes still matter—but are often handled more naturally as selections are finalized.
Why Costs Sometimes Change
Even with strong planning, construction pricing is influenced by real-world conditions. The goal is not “zero change”— it’s clarity around what causes change and how it’s handled.
Market Conditions
Material pricing, labor availability, and lead times can shift between planning and construction.
Design Evolution
As layouts and selections become more defined, costs can shift to reflect those decisions.
Site Conditions
Soil, drainage, utilities, and local requirements can impact cost once construction begins.
Common Questions
Is cost-plus always more expensive?
Not necessarily. Cost-plus reflects actual costs. The final price depends on selections, timing, and scope—just like any custom build.
Why do many custom builders prefer cost-plus?
Because it supports transparency and flexibility as details evolve. It can be a better fit when the home is truly custom and selections develop over time.
Can a fixed-price build still have cost changes?
Yes. Changes in scope, selections, or unexpected site conditions are typically handled through formal change orders.
What should I ask before choosing either model?
Ask what’s included, what’s assumed, how allowances work, how changes are handled, and what reporting/visibility you’ll have during construction.
If you want help applying these concepts to your lot, plan, and timeline—start with a short planning conversation.