How Do Builders Price New Homes?

houseIf you are considering building your own home then you are probably starting to wonder how a builder prices new home. After all, they are working from scratch and there are many pitfalls which can increase the time and costs.

It’s no surprise that more Australians are building their own hopes than ever before. Despite the cost of building a home it is significantly cheaper than purchasing a ready built one. You also have the advantage of being able to design it yourself.

But, before you start it is important to understand how builders price new homes:

In fact there are two main types of contract:

Fixed Price

As the name suggests your builder will work out exactly what materials are needed and calculate a price for them as well as for their own labor.

They then need to add in their profit margin and give you a price.

This price is fixed for the build; even if unforeseen problems occur which mean the build will cost more; it’s the builder who has to pay the fees.

Of course, if the builder can finish your house under budget then they will generate more profit. This leans you need to be careful that you’ve picked a genuine builder; if not you may find they cut corners just to maximize their profit.

Cost Plus

This approach is often considered better. The builder will give you a complete breakdown of your costs and the profit they expect to make.

You’ll be able to see exactly what each part of the process is costing.

However, if the cost of the build increases, such as if you need extra labor hire in Sydney; then you’ll need to pay the extra funds. This can make it very difficult to confirm a final price for your build.

You need to be particularly careful if a builder has quoted low simply to get the job. Under the cost plus approach they will be able to increase your bill dramatically by adding things on along the way.

You may also find that it is difficult to ascertain who deals with which issue. It may not be clear whether a poorly finished property is your responsibility to fix or your builder’s.

Summing It Up

There is no right or wrong method and it is difficult to state that two houses will cost the same to build; even if they are identical in layout. This is because there are many other factors to be taken into consideration.

With a good builder the transparency of the cost plus will allow you to feel in control and will allow the builder to do the best possible job.

This may not be the case with a fixed price contract as the main aim for the builder will be to make a good profit.

You need to consider which approach suits you best and then talk to the builder. But, no matter which approach you take it is always a good idea to have a little spare in your budget. This will help you to deal with any issues during or even after the build.

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