Introduction: Why Your Contract Type Matters More Than You Think
When you’re building a custom home, signing a contract is a major milestone. But not all contracts are created equal. The type of contract you choose will affect how your project is priced, how it’s managed, and how many issues are handled. It’s not just paperwork, it’s the foundation for how your entire experience will go. We’ve seen homeowners get overwhelmed by the fine print. We’ve also seen others skip over key terms because they’re eager to get started. In both cases, problems can show up down the line. The best way to avoid that? Understand what you’re signing before you sign it.
This blog is your guide to the three most common contract types in custom homebuilding. We’ll explain how each one works, when it makes sense to use it, and what risks you should be aware of. We’ll also share how we handle contracts at Elev8, and why that matters to your project. If you’re serious about building smart, this is a topic you can’t afford to ignore. The contract you choose sets the tone for everything that follows.
Fixed Price Contracts: Predictable Costs, Clear Scope
A fixed price contract is exactly what it sounds like. The total cost of the job is agreed upon upfront. Once you sign, you know what the price will be unless you make changes along the way. For many homeowners, this structure offers peace of mind.
Fixed price contracts are common in custom homebuilding for a reason. They give clarity. The builder provides a detailed scope of work, specifications, and inclusions. You know what you’re paying for and what you’re not. There’s no guessing about hourly labor or material markups.
This contract type works well when the design is finalized and there are few unknowns. It’s ideal if you have a clear vision, a defined budget, and want to avoid surprise expenses. But it’s not perfect for every situation. The main downside? Time. Going through the efforts of numerous design and vendor meetings to lock in scope and selections takes a big commitment time wise and all while the build is yet to have ground broken.
Still, many of our clients choose fixed prices because it helps them sleep better at night. It simplifies financing, removes budget anxiety, and when it’s done right, it sets everyone up for a smoother build. Besides, most construction slots aren’t capable of being launched right away, spend the time before you break ground to work through the design and selections process.
Cost Plus Contracts: Flexible and Transparent But Riskier for Budgets
A cost plus contract is more open-ended. Instead of locking in a total price, you agree to pay for the actual cost of labor and materials plus a set builder’s fee. That fee can be a percentage or a flat rate. This contract offers more transparency and flexibility, but it also comes with more risk.
With cost plus, you’re essentially partnering with your builder on every decision. As invoices come in, you see what everything costs. If you want to upgrade finishes or make design changes mid-project, it’s easier to do without renegotiating a whole new contract.
This type of contract works best when the scope isn’t fully defined. Maybe you’re renovating an older property with unknowns behind the walls. Or maybe you’re building on land that needs significant prep work. Cost plus gives you room to adapt. But there’s a catch: the final price is unknown. If prices rise or the project runs longer than expected, your total cost increases. It also puts more responsibility on you to track budgets closely. Some homeowners love the control. Others find it overwhelming, it’s not for everyone and that’s okay. At Elev8, we have gone away from this type of contract and use it only in very specific situations – typically smaller projects where risk of over runs are minimal.
Time & Materials Contracts: When Every Hour and Purchase Counts
Time and materials (T&M) contracts are usually reserved for small-scale jobs or highly specialized work. They’re similar to cost plus, but even more detailed. You pay for the actual time spent on the job and the exact materials used, typically without a predetermined cap.
This contract type is often used for service-based work or projects where the full scope is impossible to define up front. Think: emergency repairs, complex remodels, or phased projects where conditions are constantly changing. Under a T&M agreement, the builder tracks labor by the hour and materials by the invoice. You’re billed accordingly. This makes it very flexible. But it also makes it unpredictable. If the work goes faster than expected, great- you save money. But if delays happen or the job grows in complexity, your bill grows too. There’s no ceiling unless you negotiate one in advance. T&M contracts require trust and clear communication. If you’re the kind of homeowner who wants to approve each expense as it comes, it might work well. If you’re looking for financial certainty, it’s not your best option.
Which Contract Is Right for You? Key Questions to Ask Yourself First
Choosing a contract type isn’t about what’s most popular. It’s about what fits your personality, your project, and your risk tolerance. There’s no one-size-fits-all approach. But there are a few questions that can help you decide:
- Do I need a firm number for financing?
- Am I likely to make changes once construction starts?
- How much flexibility do I want?
- Am I comfortable tracking costs and approving expenses?
- Is my project straightforward, or are there a lot of unknowns?
If you’re working with a fixed budget and want cost certainty, a fixed price contract may be your best bet. If you value flexibility and have room in your budget to adapt, cost plus might be more appropriate. If your project is highly complex or evolving, a time and materials setup could make sense but only with safeguards in place. No matter what, you should understand the terms before you sign. Ask your builder for a walk-through of the contract. Ask what happens if something changes. Ask what isn’t included. This is your home and your investment. Make sure your contract supports both.
How Elev8 Builds with Clarity: Our Approach to Contracts
At Elev8, we don’t expect our clients to know construction contracts inside and out. That’s our job. But we do believe that you deserve clarity, transparency, and confidence from day one. That’s why we walk every homeowner through their contract, not just the what, but the why. We start with a conversation about your goals. Are you working with a tight budget? Do you want room to explore finishes and layouts during construction? Are there unknowns about the property? Your answers help us recommend the right contract structure.
Most often, we use fixed price contracts because they offer the most security for homeowners. No matter the structure, our goal is the same: deliver an exceptional result, with no surprises.
In both our new home construction and remodeling work, communication is key. We believe contracts should feel like a roadmap, not a trap. And if something doesn’t make sense, we take the time to explain it. You’re not just hiring us to build. You’re trusting us to guide you. And we take that responsibility seriously right from the contract stage.
Conclusion: Read It Before You Sign It And Ask the Right Questions
Your contract isn’t just paperwork. It’s the framework for your entire homebuilding experience. It outlines responsibilities, sets expectations, and protects everyone involved. The better you understand it, the smoother your project will go. Choosing the right contract type depends on your needs. If you want stability, a fixed price might be the way to go. If you want flexibility, cost plus could be a fit. And for specialized situations, time and materials may be the right call. But no matter the type, one thing matters most, it’s transparency.
At Elev8, we’re here to make sure you understand every part of the journey, starting with the contract. Whether you’re building new or remodeling an existing space, you’ll always know what to expect and what you’re signing.
Ready to get started with a builder who puts clarity first?
Contact us today to schedule a no-pressure consultation. Let’s build something better together.
FAQs
1. What is the most common type of contract used for custom home building?
The most common contract type we use at Elev8 is the fixed price contract. It provides clear scope, predictable costs, and works well for clients who want financial stability throughout the project. It’s ideal when the design and materials are well-defined upfront.
2. How do I know if a cost plus contract is right for my project?
A cost plus contract might be a good fit if your project includes a lot of unknowns or if you want more flexibility during construction. It’s often used in complex renovations where changes are expected. Just be aware it requires more involvement and tracking from your end.
3. Can I switch contract types after the project has started?
Changing contract types mid-project is rare and complicated. It’s better to work closely with your builder early on to choose the right contract before construction begins. At Elev8, we can help you understand the pros and cons of each option before you sign anything.
4. Does Elev8 offer help reviewing contracts before I commit?
Yes. We always walk clients through their contract and explain each section clearly. Whether you’re building a new home or planning a remodel, we believe you should feel confident in every agreement you sign. We’re here to answer questions and offer honest advice at every stage. Don’t be intimidated by the contract, buying a used car has twice the paperwork, we typically have a few laughs while we go through the agreement.
About the Author
This blog is brought to you by the team of Elev8 Construction. It is a custom home builder and remodeling company serving Central Nebraska. It specializes in new residential construction, remodels, additions, and light commercial projects.
Website: https://elev8308.com/
Phone: +13083464180