Fixed‑Price vs. Cost‑Plus for Custom Home Builds

Clear, local guidance to pick the right home builder when building a custom home on your lot.

How each contract works—and where risk really lives

Choosing between fixed‑price and cost‑plus contracts sets the tone for your custom build—especially on Hill Country lots where rock, slopes, wells, and septic can shift costs. In a fixed‑price (lump sum) contract, your builder delivers the project for an agreed price tied to a defined scope. The builder carries more risk for overruns but will price in contingency for unknowns. In a cost‑plus contract, you pay actual, documented costs of labor, materials, and subcontractors plus an agreed builder fee (percent or fixed). You carry more cost risk but get flexibility to adjust scope and selections during the build. Clarity beats theory. If your site is well‑understood—surveyed, with a soils report, utility plan, and realistic allowances—a fixed‑price agreement can give you budget certainty. When site unknowns loom (depth to rock, long utility runs, complex retaining), cost‑plus can reduce “hidden” contingencies and let you steer dollars where they add value. The National Association of Home Builders outlines common contracts for owner‑lot custom homes here: NAHB contracts overview and a helpful buyer explainer on pricing models here: How builders charge for their services (NAHB). Risk lives in scope, not labels. Fixed‑price is only fixed if drawings and specifications are complete and selections are pinned down. Cost‑plus is only fair if costs are transparent and audited. In either model, insist on a detailed scope book: engineered foundation notes, driveway and culvert specs, OSSF (septic) type, well or rainwater plan, energy code approach, and finish schedules. The fewer TBDs, the fewer budget surprises. Finally, remember that financing interacts with the contract you choose. Lenders and appraisers respond well to clear scopes and milestone draw schedules; for construction‑to‑permanent loan basics, see this consumer primer from the CFPB: CFPB: What is a construction loan?.

What to include: specs, allowances, changes, and transparency

Your agreement should read like a buildable plan, not a handshake. Start with complete drawings and a written specifications book covering structure (foundation type, framing species and spacing, roof system), envelope (WRB, insulation strategy, window models and glass specs), sitework (pad prep, rock hammering unit rates, driveway section, drainage features), and systems (HVAC equipment model/SEER, duct location, ventilation, water heating, electrical fixtures). Attach a selections schedule that lists brands, models, finishes, and quantities for appliances, plumbing, lighting, flooring, tile, and counters. Where you truly need allowances, label them “realistic” with target brand/quality tiers. Define changes and communications. In fixed‑price, any change to scope or selection goes through a written change order with cost and time impact; in cost‑plus, changes still need written approval and real‑time budget tracking. Document how the builder will share invoices, lien releases, and job cost reports. Many owners request monthly cost‑to‑complete summaries and copies of major supplier quotes. NAHB’s contract kits (fixed‑fee and cost‑plus) illustrate what robust clauses look like: NAHB Construction Contracts bundle. Control allowances before they control you. If a particular finish really matters, select it early and remove it from allowances. For big‑ticket items with long lead times—windows/doors, roofing, electrical gear, cabinetry—lock models and order timelines into the schedule. Spell out who carries permit fees, utility contributions (e.g., transformers), temporary power, erosion controls, and testing. Clear scopes reduce friction with lenders and appraisers, speeding draws and preventing re‑inspections. Finally, add right‑sized documentation rules: photo logs of subsurface work (under‑slab plumbing, conduits), inspection sign‑offs, and a shared folder with stamped plans and RFIs. These habits protect you regardless of contract type and make close‑out a breeze.

Texas‑smart tips: draws, audits, and protecting your budget

Texas‑smart details protect your budget. Create a milestone draw schedule that matches how homes are actually built here: pad/foundation, framing/dry‑in, rough‑ins, insulation/drywall, cabinets/tile, substantial completion. Tie draws to inspections to keep funding predictable. To understand how lenders think about progress and draws, a Fannie Mae overview of construction‑to‑permanent loans is useful context: Fannie Mae Construction-to-Permanent overview. In cost‑plus, specify audit rights and reporting cadence: monthly cost detail by CSI division, copies of invoices over an agreed threshold, and lien release requirements with each draw. Cap general conditions where appropriate and pre‑approve unit rates for common Texas Hill Country variables (hammering rock by hour or cubic yard, extra trenching per linear foot, export of spoils by load). In fixed‑price, lock a clear definition of “differing site conditions” and how they’re priced—surprises like unexpected rock at utility depth or uncharted drainage can be addressed fairly when rules exist. Keep insurance, bonding, and compliance visible. Require builder’s risk and general liability certificates and confirm subcontractor coverage. Align with lender and title requirements for draws to avoid last‑minute scrambles. For general consumer‑protection posture, review the Texas Attorney General’s home construction and repair advice summarized on the state portal: Texas housing assistance and homeowner resources. While not contract‑specific, it links to consumer‑rights help if disputes arise. Bottom line: the “right” contract matches your site complexity, design flexibility needs, and appetite for hands‑on budget management. With complete specs, disciplined change control, and transparent reporting, both models can deliver a great Hill Country custom home—on your lot, on budget, and without drama.