Custom Home Builders price their services to the client as either Cost Plus or Fixed Price. When a client chooses a new home builder in Austin who operates under the Cost Plus model, they may 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. During the building process, 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. Also, 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 pricing for your home are worked out in advance. As a result, the buyer gains a comprehensive understanding of the budget. Delivering a Fixed Price does require more time up-front to identify the materials and finishes. The biggest drawback has always been the inordinate amount of time it took for the builder to obtain bids from suppliers and subcontractors. Sterling 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 the price is determined, the builder assumes all the risk of the fluctuating material costs. Thus, the builder is quite willing to flex his purchasing power and hold the suppliers and subcontractors to their bids.
From a builders’ perspective, Fixed Price building is much more difficult to manage. It requires the luxury home builder to be more organized and analytical in running the business. However, when the system is applied by seasoned professionals – the bottom line benefit is that the client is protected from the instability and uncertainty of rising material and labor costs.
For more than 20 years, Sterling Custom Homes has provided the advantages of Fixed Cost building to its clients, producing the highest quality and best value in the custom home building industry.