Cost Plus Contract for Custom Home Building: How it Works

If you’re planning to build a custom home in Southwest Michigan or Northern Indiana, you’ll quickly run into two common contract types: fixed price and cost plus.

In this post, we’ll explain exactly how a cost plus contract works, why it’s often more beneficial for the homeowner, and how our process at Mark Scott Homes keeps your budget clear, organized, and actively managed—without pretending custom building is a “one price fits all” situation.

Because here’s the honest truth:

A cost plus contract is not a “what you see is what you pay” price.
It is actual cost—and we believe that transparency is the fairest way to build a truly custom home.

What Is a Cost Plus Contract?

A cost plus contract means you pay:

1. Actual project costs (labor, materials, subcontractors, permits, rentals, etc.), as they occur

2. Plus a builder fee (typically a fixed fee or percentage) to cover construction management, supervision, planning, scheduling, and execution

Instead of guessing the final cost upfront (and adding padding “just in case”), the project is built using real invoices and real costs, with a clear builder fee.

In plain English:
You pay what the project actually costs—no smoke, no mirrors, no “magic” numbers.

Cost Plus vs Fixed Price: The Biggest Difference

Fixed Price (simplified)

• Builder gives one total price for the full project

• Builder assumes risk of cost changes

• Price often includes contingencies and markup buffers to protect the builder

Cost Plus (simplified)

• Homeowner pays actual costs

• Builder fee is defined clearly

• Budget is actively monitored and updated as selections and decisions are made

Cost plus is often a better fit for high-end custom homes, lake homes, and projects where details, design evolution, and craftsmanship matter—because custom homes rarely stay perfectly “fixed” once real-world decisions begin.

Why a Cost Plus Contract Can Be Better for the Homeowner

1) Transparency: You see what things really cost

In cost plus, costs aren’t hidden inside a lump sum. You’re not wondering, “How much did they mark that up?”

You can see:

• subcontractor invoices

• material invoices

• credits if something comes in under budget

• the real impact of upgrades or scope changes

This is one of the biggest reasons many homeowners prefer cost plus: it’s open-book and honest.

2) Flexibility: Custom homes change—cost plus handles it better

With a fixed-price contract, changes can become stressful fast:

• change orders pile up

• pricing can feel unpredictable

• homeowners can feel penalized for normal decisions

With cost plus, your project can evolve more naturally because the contract is built for reality:

• you refine finishes

• you adjust layout details

• you choose priorities as you go

We still manage changes carefully—but cost plus tends to be a smoother experience for a custom build.

3) Fewer “mystery markups” and less padding

Fixed-price bids often include contingency padding because builders must protect themselves from unknowns (material fluctuations, lead times, scope gaps, etc.).

Cost plus generally reduces that “built-in guesswork,” because costs aren’t bundled into a single number that has to cover every risk.

4) Better decision-making because you stay connected to the budget

This is the part many homeowners love most once they experience it:

Cost plus encourages smart, real-time decisions, not surprises at the end.

You don’t find out you’re over budget after the fact—you see it as decisions happen, while options still exist.

“This Is Not a Fixed Price” — What That Really Means

Let’s be extremely clear:

A cost plus contract is not:

• a guaranteed total price

• a “sticker price”

• a “what you see is what you pay” number

A cost plus contract is:

• actual costs for your specific home

• tracked and managed against an agreed budget

• reviewed regularly with you

So if you’re looking for the comfort of a single guaranteed price no matter what happens, a fixed-price contract may sound appealing.

But if you want a custom home built with clarity, flexibility, and transparency, cost plus is often the better choice.

How Our Cost Plus Budget System Works - Monthly Budget Meetings

A cost plus contract only feels “safe” when it’s paired with a disciplined budget process. That’s why we don’t just build—we manage your financial picture throughout the build.

Step 1: We establish a clear project budget

Early in the process, we build a budget based on:

• plans + specifications

• allowances (where needed)

• known site and structural requirements

• project goals and priorities

This becomes the baseline that guides the project.

Step 2: We track actual costs against the budget

As invoices come in, they are coded and tracked so you can see:

• budgeted amount

• actual spent to date

• committed costs (what’s already approved but not yet invoiced)

• remaining budget

Step 3: Monthly budget meeting

Every month, we schedule a budget meeting to review:

• current costs to date

• updated projections

• upcoming decisions that affect cost

• any variance from the budget (up or down)

• options and trade-offs if we need to bring something back in line

This is not a “glance at a spreadsheet” meeting. It’s a real conversation:

• what changed

• what’s coming next

• what decisions matter most

• how to stay aligned with your goals

Step 4: We help you make informed choices

If something is trending over budget, our job is to help you make smart adjustments:

• value-engineering options

• selecting alternates

• reprioritizing features based on what matters most

The goal is simple: no surprises, and no confusion.

Common Questions About Cost Plus Contracts

Is cost plus more expensive?

Not inherently. Cost plus is often more transparent, but the final total depends on your design, selections, and scope—just like any custom home. The difference is you can see and manage it in real time. Cost plus is often less compared to a fixed fee.

How does the builder make money on cost plus?

Through the builder fee, which is defined upfront. That fee pays for management, scheduling, supervision, project leadership, and the systems needed to deliver a high-quality home.

What keeps costs from getting out of control?

A strong builder process. For us, that includes:

• detailed budgeting

• tracking actuals + commitments

• and monthly budget meetings reviewing projections and decisions

Who is cost plus best for?

Cost plus is often ideal for homeowners who value:

• transparency

• customization

• craftsmanship and high standards

• an organized process and clear communication

The Bottom Line: Cost Plus Is About Trust, Transparency, and Control

A cost plus contract isn’t a shortcut—and it isn’t “cheaper by default.” It’s a better framework for many custom homes because it’s built on reality:

• actual costs

• clear builder fee

• active budget management

• monthly financial reviews

• fewer surprises and better decision-making

If you’re considering building a custom home in Michiana and want a process that prioritizes clarity and craftsmanship, we’re happy to talk through whether a cost plus contract is the right fit for your project.

Thinking about building a custom home in Southwest Michigan or Northern Indiana?
Reach out to Mark Scott Homes to discuss your goals, timeline, and the best contract approach for your project.

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