i loved cost plus because i felt like we and the builder were on the same side rather than fighting over every bill and change.

before you sign the contract - verify that the allowances that the builder is setting will in fact allow you to buy the quality and styles you are expecting.

you can read other posts on this forum about builders who low ball allowances - it seems to be a standard practice. then when it is time for you to make selections (of course well after you are on contract) you may get surprised that the stuff you really want costs a lot more than what is in the allowance. then you will have to pay the extra (or live with what the allowance will buy) and then on top of that pay the increased fee. That can feel like a double whammy and can sour the relationship.

make preliminary selections before you go on contract (get bids from the suppliers he uses and make sure the bids include any discounts he gets) - then use these bids to establish the allownaces. after you are on contract you can still make tweaks to the selections - but at least you have a more realistic basis for the budget wedges when you start out. if you go over - that is then your choice and you will have to pay - but at least you knew going in what quality the allowance could buy.

it's all about setting expectations before you start the project. there is nothing wrong with the builder making fee off the allowance items. however, if the allowances are way off, then you will probably feel that you got dupped. this issue can minimized if you do some up front planning.

best of luck.

Do the math while considering potentialities: it is possible that cost plus 12% may mean that A is buying good grade for $100 and making $12 as his percentage. It also sounds like B may buy a better grade for $150 and make $13.50 in percentage. Or B is willing to work for less, or (since I have a suspicious mind) B is getting some renumeration from the expensive places -- and that may or may not benefit you. If B is getting 9% from you and 2% from whomever, then you benefit by 1% *IF* all else is even. But be careful not to compare apples to pineapples.

Frankly, I am leery of anyone who automatically buys from "the best place in town". That person is trusting the best place to provide the best quality for the dollar -or else doesn't care about the $ since you will be paying.

If one is buying a particular tub, say model XYZ, then it doesn't matter *who* is selling it. You are buying the tub XYZ, not the seller's name. However, many folks are not willing to take the time and effort to choose a specific of each item, and are much less willing to take the great deal of time in searching for the best price. For those folks (and many GCs are in that category), dealing with whomever they consider to be reliable suppliers is a comfort.

If you are going to pay cost-plus, consider who is going to reasearch and locate the cost -- you or the GC? IMHO, any GC who goes to the trouble and effort of finding "best price" deserves the higher percentage. And anyone who depends on someone else to do the work should be willing to pay for the work done, including the search for best price.

We went cost+ (10%) and had a good experience. In general it will likely cost a little more, but will also likely be a better result (no incentive for the builder to cut corners behind your back to make up margian). These are of course generealities, and every experience will be unique. The most important thing is getting a reputable builder.

One thing to ask is if there is flexibility in the subs and supply sources. Although our builder had a list of subs he recommended and had experience with, it was our house and we could find another sub. We almost did that with the plumbers, as they required us to use their faucets, where we wanted to shop the HD and Lowe's clearance isles. He gave us the alternative to switch plumbers, but he didn't have another sub he had worked with that we could feel good about.

We bought our kitchen appliances from different places which saved money over his recommended supplier.

Another example, he found the labor for the tile work, but we shopped around at no less than 3 different places to get all of the tile. It saved us big $, as the supply room the builder recommended was way over priced.

The point is, we had input on everything, but since we trusted him we in most cases took his experience and advice.

Good luck!

the bank is going to want to know how much the house is going to cost regardless of the contract type. to work up a price for the house, the builder may still have allowances which are just budget estimates for items that you will select in the future.

checking references is a must, but even a builder with a great reputation for building a house can screw up on the budget - and that is where many issues between builder and owner stem from.

in a cost plus contract, it is benefitial to the builder when you spend more for these items - it is easy money for them. if they also set the allowance levels when establishing the initial contract price , then it is easy to see that they could low ball these allowances to win the job, then make more money when you choose more expensive materials which they know that you are likely to buy. and when you start spending more money - perhaps a lot more than you planned or have available - that is major stress.

even if the builder is honest and doesn't low ball - they can still screw up the budget. the problem is that they cannot read your mind to know exactly what you want. you might say I want brand X for cabinets - and within that brand you could have 10 to 20% price swings just on door styles and finishes. there are a lot of variables and you are trusting someone you barely know.

if the builder assumed the best materials for everything, with the best finishes, they would scare you away with the cost. they have to assume something and that is where the trouble can begin. the more you can nail down these assumptions prior to signing the contract - the better off both of you will be. i think this is especially important for a cost plus contract where there is an advantage to the builder when you purchase items that are higher cost then initially assumed.

To avoid some of the problems sniffdog mentioned, maybe you could get a contract like ours. The builder went through a very DETAILED estimate with us and then LOCKED in his 10% fee. He then split that up evenly over the length of the build. He had no incentive to get us to upgrade one thing and no problem with us finding deals on other things. His money was set, and his motivation from there on out was not financial, but his pride and reputation.

He also gave us a copy of every invoice on every bank draw as well as an update on a line item budget so we knew how we were doing. We managed to finish at about 3% over budget.

Our cost plus contract with our builder is exactly as shawneeks describes. Our GC fee was set at the time the contract was signed and is disbursed evenly over the life of the build. It will not go up or down as the build progresses if we upgrade OR find deals on things. We have been very comfortable working in this fashion. Our GC has also been great about giving us full disclosure on all invoices paid and letting us switch subs or suppliers if we wanted to. I like working in this fashion because instead of asking him if we could have or do something, I feel in control of the choices we are making. I just find out how much something will cost and then make a decision as to if it is worth the extra cost to us to execute it. We have also been able to save a lot in some areas by shopping around. I'm handling supplying all the cabinetry in the house, our front door, the sound system and low voltage wiring, select appliances, my claw foot tub, custom tile for the kitchen backsplash and fireplace surround, all the counters etc. Knowing how much we are saving in these areas has made it easier to upgrade other items. In the end, we feel we are ending up with exactly the house we want and are extremely pleased with the process. The only negative I can see if that you have to have a certain flexibility with the final cost. There can, of course, be unforeseen issue during a build that could end up causing a cost overrun and you need to be able to and comfortable with accepting responsibility for this additional expense.

On our cost plus our CG let us buy or tell him what to buy on every item we wished. Why wouldn't he? He was getting his percentage anyway and we tended to buy up rather than down. Same with labor, we tended to request more crew or more desirable crews, even if it meant waiting until they were available (higher skill, higher deman).

We did buy a few things on Lowe's close-out or special sales (a pedestal sink, garage door openers, lighting fixtures) that were cheaper than he could get but that was more than ofset by our adding lighting automation, propane appliances and tank, granite tub decks, etc.

We got exactly the quality/items we wanted and he still made his 17%.

This is very interesting reading. Some of you stated that you direct bought items for your build....do you realize that if any of those items fail and cause damage to your home the GC's insurance will not cover it, nor will your homeowners? This is an issue being battled out in the court system and most cases have sided with the insurance company. In one situation a homeowner was left with a fire gutted million dollar home, liable for a mortgage and no insurance money. More GC's should be aware of this problem and be upfront with their clients. It is a dangerous practice and not worth the few $$$ you save clearance shopping.

Bellamay,
Would a 'course of construction' policy purchased by the homeowner's not cover this?

Bellamay,

You may be right in some very specific instances but we discussed this with our GC and insurance company and no coverage is negatively impacted in our case. Just like if you replaced a faucet or fan or light or door a year or two done the road.