Not All Proposals Are the Same. Here’s What to Know Before You Sign.
Accepting your proposal is an exciting milestone in the custom home building process. Officially putting your dreams in writing makes them feel concrete, even though construction hasn’t started yet.
Aside from the official contract, your project proposal is the most important document you will sign during your build. It lays the foundation for the entire building process. It helps you know the work and materials that will go into your project and understand how it’s being priced.
Custom home pricing can seem complex at first, which is why KRM Custom Homes works to make the building process as simple and predictable as possible. Here’s a closer look at what you may encounter in your proposal and the key elements you should examine before signing.
What’s in a Custom Home Proposal? Here’s What to Look For.
Knowing the key elements of your proposal will help you understand what you’re agreeing to. It will also help you avoid costly surprises later in the process.
Here’s a look at some of the major items you’ll find in your agreement.
Project Overview
At its most basic, your proposal will outline the core scope of your home project. This will include the home’s address, specific floor plan, the size of the home, the number of rooms (and type of rooms), and the cost of the lot, if that is part of the purchase price.
Itemized Scope of Work
The bulk of the proposal will be a detailed scope of work that covers the different phases of the project, from the initial site preparation to the final landscaping and cleaning. This critical section lets you know exactly what you’re getting for the price. There are two ways items may be listed:
- Some may have a fixed scope, such as the specific type of siding or shingles that will be used.
- Other items, such as cabinets, light fixtures, and countertops, could be listed with a monetary allowance. An allowance is like a fixed budget for that part of the project that will help guide your material selection later in the process.
Total Cost
Perhaps most importantly, your proposal may outline the final price for your home. Depending on the type of proposal you sign, you could know the full cost up-front, or your proposal could explain how the final cost will be calculated in the future. At KRM, we always give you the full price up front so there are no surprises.
The proposal can also outline how the home is being financed, such as whether the financing is being carried by the builder or the homeowner.
Other Important Terms
Your proposal will specify how additional changes to the project could affect the price, as well as how long your proposed price is good for before you sign it.
Fixed Price vs. Cost-Plus: Understanding the Main Types of Home Pricing
When it comes to calculating the final cost of your home, your builder can take different approaches. The two main types of pricing structure are “fixed price” and “cost plus.”
The key difference that separates the two lies in who takes on the risk of fluctuating material prices: the builder or the homeowner. Here’s how both types work.
Fixed Pricing
Fixed pricing (also known as “fixed fee” or “lump sum”) lets you know exactly what you’ll pay for up front. This type of pricing puts the responsibility on the builder to predict the price of materials when they lock in the final cost.
This makes the process easier for both you as a homeowner and your financing institution. If the materials specified in the proposal cost more than expected, you won’t have a surprise bill at the end of the process.
At KRM Custom Homes, we use fixed price proposals so that you can have peace of mind throughout the building process.
Cost Plus Pricing
“Cost plus” pricing is the opposite of fixed price. This pricing model specifies that the homeowner will pay the builder for the cost of materials, plus the builder’s fee for their work. This makes sure the contractor will not lose money on the project. However, it also means the homeowner won’t fully know the final price until the end.
The major advantage of cost-plus pricing is the greater flexibility and transparency they provide. Changes to the project are easier to make due to the undefined final cost. Homeowners also know exactly what they are paying for their materials in the end, since it is itemized in the bill.
However, the downside is simple: The final cost of the home is unpredictable. Homeowners could potentially end up paying a much larger cost than anticipated once the project is complete. This could be because of material costs increasing in price, or it could be due to additions they make to the project without realizing the added cost. This type of pricing can also add pressure to homeowners to verify all of the costs themselves by digging through each charge.
Which Type Is the Best for New Home Construction?
While it comes to deciding what’s best, we at KRM Custom Homes believe fixed pricing is generally the best option. That’s why we operate with fully up-front home pricing. This structure gives you and your lender certainty about your bottom line.
We work hard to make sure our building process is fair and transparent, so you get the home you’re envisioning at the price you expect. You can find more information on how our pricing structure works here.
Have questions about your proposal, or any other part of the process? We’re ready to talk! Contact KRM Custom Homes today.
