What does the contract say?

What sort of contract? All-in or cost-plus? Apparently the former.

I gotta tell you, even if you think you lucked out with the former, he will find a way to make it up. Beware.

Thank you for your feedback. :)
It is an All in Contract.

So what could I respond politely to his request?

Is there a time limit on the contract? Because if there's not and you hold to the cost in the contract and the GC will be losing money, you are looking at a v-e-r-y long time to completion.

See : https://www.houzz.com/discussions/6154837/building-a-home-before-the-pandemic#n=9

As the old saying , you can only choose 2 of these. In the pandemic, it might only be 1:

1. Speed

2. Quality

3. Price

I would politely say ”no”.

Or do you think he would charge you less if somehow his cost decreased?

Have you started building yet? Maybe he can reprice with the yard.

Forbes Jul 7

Lumber prices continue to plummet—down 49% from the peak

The lumber bubble is deflating—fast. The price per thousand board feet of lumber hit $770 last week, down from its all-time high of $1,515 on May 28.

Send him the Forbes article. Check for the lumber price per tbf when he signed the contract. Compare that with the current dropping price.

Our cost of building has increased twice since we went under contract. Once in May and again in June as lumber prices skyrocketed. As Jeffrey pointed out above, even though lumber prices are beginning to fall (note - lumber futures falling does not mean the cost of lumber in the lumberyard is any less expensive today), other item pricing is still extremely volatile with lots of material still increasing in costs.

I'm of course disappointed and frustrated with the cost increases, but I trust my builder and they have been completely upfront and transparent with the reasons why. I certainly don't expect them to eat the cost increases and build a house at a loss. At each increase, our options were 1.--accept the increase and continue the project, or 2.--reject the increase and cancel the contract at no penalty other than having to pay for work that has been completed thus far.

We decided to continue the build despite the cost increases, but we've had to make sacrifices in our selections and our plans for outbuildings in order to be able to afford the additional costs. We're just hoping that there are no additional major suprises in store because our buffer of funds we had to handle unforeseen emergencies has already been used and we haven't even broken ground yet.

I was in the same boat. Our contract had no escalation clauses nor construction allowances, so effectively fixed-priced and a positive for us. We told builder no, insisting on "specific performance" of our contract but we said we would wait 2 months. Lumber prices eventually went down and builder recently went ahead with framing but with dimensional lumber, not i-joist.

Good luck with your build.

A neighbor told us this just happened to their son. Building in a development with a production builder and the house is 80% done. The buyers were just told to pay up an extra 35K or walk away. There was a "small" clause buried in the contract that allowed the builder to do this. Luckily the neighbor was able to help the son and they will still be able to buy the house.

does the contract have an escalation clause ? we are both architects and contractors and we always have an escalation clause on our design build projects. when you bid on a project, you are making educated guesses on the future of material and labor costs. we are not always sure we can control the price of particular items on a project.. things like framing lumber, structural steel, concrete etc are highly dependant on the economy, so we include those as best guesses with written estimates and make note on our bid that indicate if these items go up in price then the client will be charged for the overage.. now, on most of our projects, we have gone to an open book, cost plus format. clients see everything and that allows them to better understand the complexities of designing and building a project. if something goes down in price, the client sees a savings and if likewise if something increases in price, or labor increses then the client sees the increase.

@spire architecture inc I like the open book, cost plus format. Seems like an equitable way of dealing with unforeseen expenses. Do you have an idea what percentage of builders do this?

its hard to say how many contractors operate with full transparency / open book practices. it also can become really tough when the decision makers have so much information .... it can initially slow down the process.... in my experience once the clients see the schedule , cost model and team communications as a living process that is in constant change/upadte/adjustment, then they understand what effects schedule and what effects costs and then they see the real value.

We have an open book, cost plus format with our builder. The question becomes, is the builder trying to get the best price for a particular stage (framing, foundation, etc) from his short list of trusted subs. I don't think that is happening as much right now with covid. I think our builder is going to his best and most reliable contact and working with that quote. Maybe we pay a bit more for that sub, but it probably gets offset by getting the job done on schedule and done right the first time.

My builder is currently not quoting anything with a fixed cost as he isn't willing to take on the risk and subsidize someone else's house!

like anything you have to weigh the entire project on quality, price and schedule. if a project is based on quality we select / recommend the team members who are quality minded craftsman / craftswoman. if the project is schedule based (we have to have it done by a particular date or because of environmental issues) then we adjust the team to accomodate. finally, every project should be budget minded, regardless. we don't waist people money or time. couple ways we make sure we are appropriate and competitive is 1) we hire an outside estimator to establish the value of the project and that becomes our target. 2) we provide 2 or 3 bids for the critical project elements. 3) we are open to working with any combination of team members, your brother is an inspired electrician, or you have a prefered cabinet maker , or whatever , we will welcome you to the team and help you be successful.

The builder will certainly try to recover higher costs somewhere. Are you prepared to live with the consequenses of that? Higher material costs are real. I'd re-negotiate to help cover the real increases, though not necessarily the profit etc on those increases. Otherwise you risk out-of-sight corner cutting to make up the difference.

Several thoughts:

- If you contracted for X, you should pay X. That's the way contracts work.

- If the cost of lumber had decreased, would the builder have split his savings with you?

- But since we live in the real world, if you refuse, the builder is likely to "take it out on you" somewhere ... to make up his costs elsewhere ... and you may not figure out just where he "saved" for years.

- To keep the peace, is it possible to make an offer that is less than "splitting the whole difference" ... or ask him to throw in something else at no cost? You know what I'm saying ... don't give in altogether /make him think you're being fair, but also don't give as much as he's asking.

"the builder is likely to "take it out on you" somewhere ... to make up his costs elsewhere ... and you may not figure out just where he "saved" for years."

Exactly ^^^^ this and of that you can guaranteed. Somehow someway, maybe it will take longer, maybe they will take short cuts...............

Mrs. Pete, except most of the production/tract builder have a tiny little clause in their contracts that allows them to pass the cost to the buyer. Most people who buy from production builders don't have their contracts reviewed by their own lawyer, and they happily sign the builder's contract. These builders didn't get to be big businesses by taking losses on their projects! Buyer beware.

My neighbors son's only two choices based on the contract they signed, was pay up or walk away. There was no third choice of not paying the price increase and still getting to buy the house.

Smart builder. You pay more; he wins. You walk, he finishes the house and sells it for more than you were going to pay for it; he wins again.

He can sleep at night knowing he kept his end of the deal.

Waiting for lower prices could have been a third option, right?

"Waiting for lower prices could have been a third option, right?"

Do you know when that might be? All signs I see are it will be a long while.

Builder and us agreed to wait 2 months, and framing has resumed.

Lumber is down, everything else is still up and only increasing though. Supply is also extremely tight.

HU, what is your build? Custom on your lot?

A medium/large tract/production builder is not going to wait for anyone or anything that doesn't benefit their bottom line, which is why my neighbor's son only had 2 choices, pay up or move on. If you pay up the builder makes up the price increases. If you move on, the builder also makes up the price increase by charging the next person in line a higher price. Of course, this only works in the current market with high demand and low inventory.

A different type of contract and a different type of builder will probably have more flexibility.

I don’t think you are alone in prices rising. Bite the bullet or walk away. Everyone is over a barrel thanks to fossil fuel production being shut down on FEDERAL LANDS. So we are importing fossil fuel from all over the world. Barrel costs have gone from 40 dollars a barrel to 70 a barrel in 6 months, and rising. Everything moves on fossil fuel transport. Everyone is in a pinch..... your builder needs to survive and you need a house. This is the new reality. Your builder is passing his costs on to you.....as is every other contractor in the nation. Just be grateful interests rates are amazingly low. A long term low cost mortgage will save you a lot of money long after you have moved into your home! Good luck.

@chispa not sure what to call it. We chose from several models and can customize some features/materials and the builder owns the lot. We are trying to make the best out of the situation. Good luck.

HU, it sounds like you got a builder that is willing to work with you during these weird times. You got lucky or did a lot of research on the builder before signing! ;-)

Our is cost plus and we own the lot, but luckily had placed a lot of the material orders before stuff got much more expensive and hard to find. No complaints with out builder, who has good subs and is keeping us on schedule.