One lot could have perfect native soil and another lot could have 3′ of rock that needs to be blasted or chipped away. Or, in the case of my home, we had 6′ of peat moss that had to be removed and replaced with blasted rock and an engineered pad.

Access could also affect the price significantly. Digging a small hole on a tight lot could be more expensive than digging a large hole on a wide open lot. However, large lots often come with the need for lots of fill and a long driveway.

Site work, well and septic are all items that will not increase with the size of the home. For example, a septic system for a 4,000 s.f. home will not cost 4 times more than a septic system for a 1,000 s.f. home. They will be fairly close in price. This is another factor that throws off the per square foot pricing model if you are trying to include that in the calculation. Similarly, the well will be the same price to dig no matter how big the home is. This means that smaller homes will cost more per square foot if you include everything that is required to build the home (not just the structure).

Checks in the foundation, pads, piers, garages, foundation type and height, slab thicknesses. structural requirements, basement or no basement: These and other factors all affect the foundation price. The simpler the design, the less it will cost. More corners equals more costs.

​Your 2,500 square foot custom home could have an Ikea kitchen with laminate tops and 1.5 bathrooms or it could have a $100,000 kitchen with 3.5 bathrooms. Bathrooms and kitchens are the most expensive rooms in homes.

More often than not, we are asked to price a project with little to no details. We may get a question like "How much will it cost to build a 2,500 square foot bungalow?" or "How much to renovate my kitchen?" If we're lucky, the best plans we'll get are plans that say Issued For Pricing which have very little detail to actually get accurate pricing.

It's impossible to give an accurate price without a full set of drawings and complete set of details and selections. In renovations it's even more difficult as we often don't know what we're going to uncover until we get into the project.

So why set this expectation? Why risk setting yourself up for disappointment?

As a homeowner, we understand that price is important and that it is difficult to commit to a contractor without seeing a price. On the same hand, if one contractor is quoting $250,000 for a project and another is quoting $300,000, this is likely a mistake somewhere and going for the cheaper option is likely not going to pan out in the end (nor does it guarantee that the project will actually be cheaper).

This post is meant to open your mind to a new way of thinking about your project. It's not meant to convince you to work one way or another, it's simply information that you can use so that you can make a conscious decision about what is best for you.

In our years of construction, we have used a variation of contracts but they have all worked into two different categories:

1. Cost-Plus
2. FIxed Price

Before we get into the differences between the two contracts, it's important to understand that there is a cost to doing business. That means that it costs money in order to be in business.

For example, if you work in an office, there's a cost to keeping that office running as well as keeping you as an employee. On top of paying your salary, the business also needs to pay for your benefits, the lease and/or maintenance of the building, the utilities, the computers, the desks, the chairs, the cleaning, insurance, taxes, loans, interest, vehicles, software, hardware, supplies, subscriptions and so forth.

That means that your "cost" (meaning the cost to the company) may be $35/hour but the company also needs to recoup all the other costs that are associated with keeping you paid.

As a contractor it is the same. There is a cost to being a contractor in business. There are things required in order to stay in business and continue to deliver outstanding quality and service.

(Yes, there are a lot of contractors who do not understand this but that is why a lot of them go out of business. And that's not good for the industry or for the homeowner.)

Now, whether those costs of business are hidden in the Fixed Price Contract or out in the open of a Cost-Plus Contract is up to you to decide what makes you feel more comfortable.

Here are some differences between the two different types of contracts. Whether or not they are pros or cons are up to you to decide.

Transparency:
Cost-Plus is financially transparent for the project because all financials for that project are shared with the homeowner whereas a Fixed-Price Contract does not require the contractor to share any financials. As an example, if a toilet costs the contractor $400 and the fees in Cost-Plus Contract work out to total a 30% markup, then you know that toilet will be $400 + 30% which equals $520 (plus applicable taxes). In a Fixed Price Contract there is no requirement to share the cost of the toilet so the contractor could charge you $700 (plus applicable taxes) if he chooses to. Ultimately that 30% needs to be worked into the price somewhere. Whether it's hidden or out in the open is the difference.

Product Warranties:
As part of our contracts, we offer a 3-year workmanship warranty (New Homes have a 7-year Tarion warranty). Outside of the workmanship warranty, there are also products that will have warranties. With Cost-Plus you will have a copy of every receipt and invoice for everything for your project. With a Fixed Price you will not receive any of those receipts or invoices. Any product issues you have will need to go through the contractor as they will have the original receipt.

Financials:
Cost-Plus may seem as though the financial risk is on the homeowner, however, if the Fixed Price Contract does not include everything or anything is unclear, there is the risk of Change Orders for an undetermined amount. If the contract is tight and the work is very clear, a Fixed Price Contract could be the best option. If there are a lot of uncertainties or things are not detailed extremely accurately, the Cost-Plus Contract may be the best option.

Schedule:
It may seem like a Fixed Price Contract has the most incentive for the contractor to stay on schedule in order to hit milestones and receive payments, however, there is no benefit to a contractor taking longer for a Cost-Plus Contract either. It's always beneficial for any contractor to get in, do the work as quickly as possible and move on to the next project. Whether it's a Fixed Price or Cost-Plus, there is usually a fee for the project management and taking longer on a project is not necessarily going to increase this fee which means lost money to the contractor in either case.

For the last couple of years we have only used the Cost-Plus Contract. Does this mean we would not do a Fixed Price Contract? No. We would be happy to do a Fixed Price Contract however we would need a lot more details than what we usually get at the beginning of a project.

That being said, we understand that homeowners need to see a price. It's hard to understand how a 2,500 square foot home will cost $900,000 until the price is broken into categories. Knowing this, when we are contacted at the early stages, we can put together a rough estimate which shows where costs could go depending on the final design, details and selections. This, to us, is the starting point. From here decisions need to be made in order to address as many of the project priorities as possible.

That's up for you to decide. No matter which route you go, you want to make sure you feel comfortable working with your contractor. Whether it's a Fixed Price or a Cost-Plus Contract, there are going to be unexpected costs due to changes and/or site conditions. It's a reality of renovating and building custom homes. It requires a lot of work and the lines of communication need to be open between everybody involved when these things happen.

Are you thinking of renovating or building?
Are you wondering how much it’s going to cost you?
Do you like being involved in the process?
Are you managing the project yourself?

If you’ve answered yes to any of the questions above, I have something for you!

Throughout my career in construction (custom homes & renovations), I’ve come to realize that most homeowners and building owners like to be involved as much as possible in the process. They often do a lot of their own research and have many questions (which is great) and as you may have guessed, a lot of them revolve around costs and processes.

Unfortunately, what often happens is that people end up being disappointed because they eventually realize that their Dream Home or Ideal Build is not within their Budget.

I’m usually the bearer of bad news on this front…

The cause is really just because most people don’t know how much is really involved in their project. It’s not their fault, they just don’t know.

Well, I’ve created something to help with this.

What I’ve created is a complete estimating spreadsheet for your residential project. Whether you’re renovating or building brand new, this will work for you. It has everything you need to think about when planning your project. From the planning stages right through to the final clean up.

This estimating spreadsheet will do the following for you:

• Save you days (if not weeks) of trying to create your own spreadsheet;
• Show you everything that’s required for your project;
• Separate pricing for each phase of your project;
• Allow you to budget according to your priorities;
• Prepare you more thoroughly before you decide to bring in a contractor (if you choose);
• And so much more!

This spreadsheet is completely FREE. Simply fill out the form below to access it.

You can also watch this short video on how to use it.