Fixed-price vs. cost-plus contracts
Most custom homes are built under one of two kinds of contract. They differ in who carries the risk when costs change, and in how much you see of the builder's numbers.
Updated October 2026 · How we calculate costs
Fixed-price
The builder agrees to build the plans and specifications for a set price. If lumber jumps or the framing takes longer than planned, that's the builder's problem. Changes you make are priced as change orders.
Because the builder carries the risk, a fixed price usually includes a cushion for it. You also see less of the underlying costs. Fixed prices work best when the plans and selections are complete before signing; vague specifications lead to disputes about what was included.
Cost-plus
You pay the actual cost of labor and materials plus the builder's fee, either a percentage (commonly 10% to 20%) or a fixed amount. You see invoices and can make decisions as you go, which suits homes where design is still evolving or the site has unknowns.
The risk of overruns sits with you. Many cost-plus contracts include a budget estimate, and some cap the total (a "guaranteed maximum price") or the builder's fee. A fixed fee rather than a percentage removes the incentive to let costs grow.
Side by side
| Fixed-price | Cost-plus | |
|---|---|---|
| Who carries overrun risk | Builder | Owner |
| Visibility into costs | Limited | Full, with invoices |
| Best when | Plans and selections are final | Design is evolving or the site has unknowns |
| Changes | Priced as change orders | Cost plus fee |
| Watch for | Low allowances, vague specs | No budget, uncapped percentage fee |
Questions to settle either way
- What's in the allowances, and what happens if we go over?
- How are change orders priced and approved?
- Who keeps unused contingency?
- How are payments tied to completed work?
Use an independent estimate as a reference point when you compare contracts, and see questions to ask a builder.