When families ask about cost plus vs fixed price, there’s one question I get on almost every discovery call, usually right after ‘How long will it take?’
“So how does the pricing work?”
It’s a great question, and honestly, it’s one more people should ask. The contract type you sign decides who carries the risk when things cost more than expected. On a custom home, that’s not a small detail. It’s the whole ballgame.
I’ve said before that building without a fixed-price contract is basically handing your checkbook to the builder and hoping for the best. I still believe that. But I also want to be fair, because cost-plus isn’t evil, and there are times it makes sense. So let’s walk through how each one actually works, where each one fits, and the part most builders skip: allowances.
Cost Plus vs Fixed Price: Two Ways to Pay for a Custom Home
How a Cost-Plus Contract Works
On a cost-plus contract, you pay the actual cost of the work (materials, labor, subcontractors) plus a builder fee on top. That fee is often a percentage of the costs, and sometimes it’s a set amount.
The appeal is transparency. You see the invoices, you see what everything costs, and you’re not paying for the builder’s risk cushion, because the builder isn’t carrying the risk.
That’s also the catch. You are. There’s no ceiling. If lumber jumps, if a trade takes longer than planned, if the framing crew has a slow month, the cost goes up and you pay it. And when the fee is a percentage of costs, the builder earns more as the job gets more expensive. Most builders aren’t trying to run up your bill, but the structure doesn’t do anything to stop it.
How a Fixed-Price Contract Works
On a fixed-price contract, we price your home from complete plans and agreed scope, and that’s the number you sign. If our costs come in higher than we expected on the work we priced, that’s on us, not you.
That flips the incentive. On a fixed price, the only way we protect our margin is to plan well, buy well, schedule well, and avoid mistakes. Our success depends on foresight, not luck, and that lines up with exactly what you want.
Bottom line: cost-plus puts the risk on you. Fixed price puts it on the builder. Everything else is details.
When Cost-Plus Can Make Sense
I promised to be fair, so here it is. Cost-plus can be the right tool when:
- The scope is genuinely undefined. If you want to design as you go, or you honestly don’t know what you want yet, nobody can give you a real fixed price. Any number would be a guess.
- There are big unknowns behind the walls. A remodel of an older home, like some of the older neighborhoods here in Utah, can hide surprises nobody can see until demo.
- Speed matters more than certainty. Starting before plans are finished is possible on cost-plus. It’s just expensive in ways you won’t see until later.
- You have a cushion and a builder you deeply trust. Some owners want to be in the weeds on every invoice and are comfortable with the number moving.
If that’s you, cost-plus can work. Just go in with your eyes open.
Builder Tip: If you go cost-plus, ask for open books, regular cost reports against an estimated budget, and a clear definition of what counts as “cost” versus what’s covered by the fee. If a builder hesitates on any of those, that tells you something.
Why We Build on a Fixed Price
For most families building in Utah County and Salt Lake County, a custom home is the biggest purchase they’ll ever make. You’ve got a budget, a lender, and a life to plan around. “We’ll see what it costs” isn’t a plan.
That’s why we build on a fixed price. Here’s what that gets you:
- A number you can plan around. You know what you’re signing up for before the dirt moves.
- A builder with skin in the game. Mistakes, inefficiencies, and slow trades are our problem to solve, not yours to fund.
- Decisions made up front. A fixed price forces both of us to think through the details early, which is exactly when changes are cheapest.
- Straight answers from the owners. You talk to Chad and me directly, so when a question about cost comes up, you get it from the people who own the number.
Bottom line: fixed price doesn’t make construction risk disappear. It just makes sure the person managing that risk is the one paid to manage it.
The Honest Part: Allowances
Here’s where I want to be really clear, because this is where a lot of “fixed-price” builders get slippery.
Our contracts are fixed price with some allowances. It’s not a pure, every-penny-locked number, and I don’t think any honest custom builder can promise that on every home.
What an Allowance Is
An allowance is a budget placeholder for something you haven’t picked yet. Say you haven’t chosen your lighting fixtures by the time we bid. We’ll carry a lighting allowance in the contract. When you make your picks, if you land under the allowance, you get the difference back. If you go over, you pay the difference. Either way, we document it with a change order, so it’s always in writing.
Allowances aren’t a trick. They’re a tool that lets us give you a fixed price before every single decision is made. But they’re also where budgets quietly break, especially when an allowance is set too low to make the bid look good. A low allowance doesn’t save you money. It just moves the surprise to later.
How Good Selections Shrink Allowances
The best way to protect your fixed price is to have fewer allowances in it. And the way you do that is by making selections early.
That’s exactly why we build selections into pre-construction. As I walk through in Before the Dirt Moves, the first four phases go like this:
- Plans. We get the design right while it’s still cheap to change.
- Engineering & Selections. While the engineers do their part, we work with you on cabinets, countertops, flooring, plumbing fixtures, lighting, and finishes.
- Geo-technical report (when you need one). Often the developer’s soils report covers it. We order one for older lots, hillsides, fill, or when the city asks.
- Fixed-price bidding. Your plans, selections, and site info go out to our trade partners, and we build your proposal.
Every selection made before step four is a real price instead of a placeholder. The more real prices in your contract, the more “fixed” your fixed price actually is.
Builder Tip: Make your big-ticket selections first. Cabinets, counters, and flooring move the number far more than towel bars do. Get those locked before we bid, and your allowances shrink to the small stuff.
What Can Still Change a Fixed Price
I’d rather you hear this from me now than be surprised later. A fixed price can still move when:
- You ask for a change. Add a window, move a wall, upgrade the tile. We handle every change in writing, with the cost and schedule impact, before any work happens.
- Allowance selections come in over budget. That’s why we push to make selections early and set allowances realistically.
- Something is outside the agreed scope. Your contract spells out what’s included and what isn’t. Read it, and ask about anything that isn’t clear.
None of these should be a surprise. If a builder’s fixed price changes for reasons that aren’t on this list, that’s worth asking about.
Questions to Ask Any Builder Before You Sign
Whatever contract you choose, and whoever you choose to build with, ask these:
- Is this a fixed price or cost-plus? If it’s “fixed,” what’s not fixed?
- Which items are allowances, and how did you set those amounts?
- What happens if I come in under or over an allowance?
- How are change orders priced and approved?
- What’s excluded from the contract?
- Who do I call when I have a question about cost?
For more on what to look for beyond the contract, check out my top 5 things to look for in a custom home builder in Utah.
Bottom line: the right contract is the one where you understand exactly what’s fixed, what’s not, and who’s on the hook when something changes.
Thinking About Building? Let’s Talk.
If you’re planning a custom home in Utah County or Salt Lake County and want to see how a fixed price would work for your lot and your plans, book a free discovery call with me. We’ll talk through where you are, what’s realistic, and whether we’re a good fit. No pressure and no sales pitch.
Either way, ask the hard questions about pricing, with us or anyone else. Fixed price, full transparency, and no surprises. That’s how we build.
