re: Builder Asking About Budget on House?

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What is cost plus?

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cost plus is the builders actual cost plus a percentage of that cost...i.e. 12%. He spends $100 on material, you get a bill for $112. Flat fee is a fixed amount regardless of the scope of the house.

The downside of flat fee is you'll quickly lose the builder's interest if the project drags out beyond the target completion date. He'll probably pad his fee some to cover this risk, which means you are paying too much if he completes on time. If there is an architect or interior designer on the job, he'll pad the fee more.

Cost plus typically works with the builder submitting invoices to you every week or two for payment. You require him to submit the invoices he gets from his subs and suppliers, you pay that plus the markup. The challenge with this scenario is typically project financing. Is there a construction loan? Who is taking out the loan, you or the builder? When can draws be made? etc. How does the cash flow to the builder line up with when he has to pay for materials and pay his subcontractors? What is his risk if you walk in the middle of the project?