Cost-Plus vs. Fixed-Price Contracts and What You Need to Know

When purchasing everyday products or services, most people expect a set price—no surprises, no fine print. But pricing can be more complex in the world of custom homebuilding. At McMahon Custom Homes, we work with two common contract types: cost-plus contracts and fixed-price contracts.

Understanding the pros and cons of each is critical to making informed decisions and staying on budget when building your dream home.

A cost-plus contract means you pay the actual cost of labor, materials, and subcontractors plus the builder’s agreed-upon overhead and profit.

• Transparency: Builders provide detailed cost breakdowns backed by real estimates or bids.
• Flexibility: You can make changes throughout the project without costly change orders.
• Shared Risk: If unexpected issues arise (e.g., hitting rock during excavation), you can offset the cost by adjusting future selections.
• Budget Control: You receive monthly reconciliations and invoices showing exactly how money was spent.

Cost-plus contracts offer clarity and customization for clients seeking more control and collaboration in the building process. This approach is ideal for highly personalized homes where selections and finishes evolve throughout the project.

The main drawback? Some builders may not be incentivized to find the lowest possible costs. That’s why working with a builder you trust is essential — one who negotiates with vendors, values your investment, and shares a detailed budget from the start.

A fixed-price contract means you agree to a set price for the entire home build — unless a formal change order is submitted.

• Price Certainty: You know the full cost of your home before breaking ground.
• Simplified Process: The process can move quickly and predictably with limited customization.

This approach works well for buyers who don’t anticipate changing selections or want a turnkey custom home with pre-set options.

Builders often pad fixed-price contracts to protect themselves against unknowns. They keep the extra margin if no issues arise, meaning you may overpay. You’ll also have less flexibility to make design changes once construction begins.

Choosing between cost-plus vs. fixed-price contracts depends on your goals:

• Want more flexibility, transparency, and input in every decision? → Cost-plus might be your best fit.
• Prefer a locked-in number and less involvement? → A fixed-price contract offers more predictability.

At McMahon Custom Homes, we use cost-plus contracts because every home we build is unique. We prioritize your vision and budget from our initial design meetings to final selections. Our approach includes:

• Detailed budget worksheets
• Transparent bids from trusted trade partners
• Collaborative decision-making at every stage

This ensures you stay informed, involved, and confident throughout your entire custom homebuilding journey.

Before signing with any custom home builder in Richmond, Chesterfield, or Central Virginia, ensure you understand your contract. Whether you choose cost-plus for flexibility or fixed-price for simplicity, the right builder will walk with you every step of the way.

Ready to build your dream home? Let’s start with a conversation.