• Building a new home – what type of contract is best?

    When building a new home, the different types of contracts can be confusing. So we’ve summarised the main differences here to make it easier for you to decide which best suits your requirements.

    Fixed Price Contract

    The builder gives you a fixed price for a set amount of work which should be detailed either in the contract itself or as an annexure. It’s vital you check to ensure everything you need is included in the price and, if not, a provisional sum should be agreed on for unknown items.

    Positives: Finance companies and banks prefer to know upfront the cost of the project so you’ll probably find it easier to get your finance approved with this type of contract.

    Negatives: If you want to make changes once the contract has been signed, the variations can be much more costly than with other types of contracts.

    Cost-Plus Contract

    You pay the builder’s cost for materials plus a set margin on all expenses. You’ll receive regular invoices throughout the build which will specify the cost for the materials and labour and the margin will be added. This contract is adaptable and can be set up in a variety of ways.

    Positives: If you are invested in your build and willing to be in close contact with your builder on a very regular basis, a cost-plus contract can be good for both parties. The builder has good cash flow as they are being paid on a fortnightly (or so) basis and the margin is generally lower than on a fixed price contract so the homeowner can save money.

    Negatives: Many finance companies will not finance this type of contract. Cost-plus contracts can be dangerous in the hands of a dodgy builder who may choose to pass on retail, rather than wholesale, pricing.

    Cost-Plus Contract: Project Management

    The builder will give you a fixed price for their services which should include all supervision of building work, organisation of trades and materials, and administration. The contract price should also include all overheads.

    Positives: If your builder has done an accurate estimation of costs and supplies you with updated pricing along the way, this is a great way to keep an eye on expenses and track whether you are ahead or behind the planned budget.

    Negatives: Any upgrades will incur and additional cost and, if not made clear from the start, this can mean you exceed your budget.

    Any choice you make about which contract you sign should be based on your individual circumstances, financing options, relationship with your builder and the reputation of your builder so make sure you investigate all your options before you sign. At Natura Homes, we work with clients from all walks of life and can tailor a contract to suit your needs. Talk to our expert team today about your building plans.

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