Building Your Dream Home: Types of Builder Contracts

Working with a home builder to construct your custom dream home is an exciting endeavor. It is a lot of work, both for you and your builder, but it is worth it in the end. While choosing the layout and design elements can be an exciting process, there is an important step that cannot be overlooked: the contracts. Don’t be surprised when your home builder asks you to sign a contract before work proceeds.

Importance of Contracts

Home builder’s contracts not only protect the builder, but they also protect you. They lay out the expectations for each party in clear terms so there is no confusion at any point. Contracts can feel a little overwhelming, but with some careful consideration, you can break them down. Some people prefer to have a lawyer who is familiar with construction contracts explain the details before they sign.

Types of Contracts that Home Builders May Use:

There are a few types of construction contracts that your builder may ask you to sign. Your builder will use the one that makes sense for your project. Some of the most common contracts that home builders use include:

1) Lump Sum Contract

Lump sum contracts are used when there is an agreed-upon price for a project. The terms will clearly state what the price includes and what constitutes an upgrade. If changes are made to the expectations, then a change order or new contract will need to be drawn up.

2) Unit Price Contract

These types of contracts are generally used for smaller projects, like painting and repairs. These types of jobs have fairly static prices and time frames, so a unit price is simpler to figure out.

3) Cost-Plus Contract

A cost-plus contract is used when the homeowner pays directly for the materials and then is billed separately for the labor and other costs. These additional costs can be billed as a percentage of the project or at a fixed rate. They also sometimes have a maximum price clearly stated.

4) Time and Materials Contract

Time and materials contracts work similarly to the way that auto mechanics are paid: their bills list parts and hourly labor separately. When builders use time and materials contracts, the homeowner pays a specified rate for the build plus all the material costs. These types of contracts list all direct, indirect, and overhead costs. These are not common because it is hard to estimate the entire project cost.

Working With a Builder You Trust

The most important thing is to work with a builder that you trust and who is good at communicating. If you have questions about the contract, make sure you ask. The best home builders will be able to explain every detail in the contract and will make sure that you are comfortable before signing it.

At Riverbend Homes, we are a second-generation, family-owned business, and we are passionate about our clients. Communication and client satisfaction are incredibly important to everyone on our team. We pride ourselves in being reliable and dedicated home builders in Texas Hill Country.