Cost Plus vs Fixed PriceBy
When a client chooses a builder who operates under the cost plus model, they have the perception that their dream home will cost less since they are receiving “builder cost”. However, building hard costs constantly fluctuate based on supply and demand. While building a home, one can typically expect the price of concrete, lumber or sheetrock to increase. The fact is, this increase must be absorbed by someone and, under the cost plus model, that would be the client. When there is no fixed price quoted on labor and material, the builder has less incentive to flex his purchasing power and protect the client. The bottom line is, the more expensive the home, the more profit for the builder.
By contrast, in a fixed price scenario, all the specifications and price of your home are worked out in advance. As a result, the buyer walks out with a comprehensive understanding of their budget. Delivering a fixed price does require more time up front to identify the materials and selections. The biggest drawback has always been the inordinate amount of time it took to obtain bids from suppliers and subcontractors. Sterling Custom Homes has solved this problem by developing a proprietary Specifications and Pricing module that allows us to front-load material and labor costs. This enables us to produce a fixed price in a matter of a few days, rather than weeks or months.
Once a price agreement is met, the builder assumes all the risk of the fluctuating material costs. Thus, he is quite willing to flex his purchasing power and hold the suppliers and subcontractors to their bids. While fixed price results in the uncertainty of the builder’s profit, it protects the client form the instability of material and labor costs.
For the last 20 years, Sterling has extended the advantage of fixed cost building to the client which has proven to be the most efficient and positive experience for them.