Contract Types

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There are different contracts used by contractors, make sure you understand the type of contract you are signing.  

Here are examples of different types of contracts:

Construction Management Agreement
Construction management is basically a flat fee to the contractor to supervise the construction of the home.  You will know exactly how much you are paying to the contractor as well as to the sub contractors for their work.  There are no hidden fees or padded contracts.  The contractor's role is to coordinate with you, the sub contractors and the city inspectors.  Construction loan draws go directly to your bank account so you retain control of the funds and know exactly how the money is being spent.  There are no change orders, so any upgrades are completely up to the homeowner. 

 
Cost Plus (%)
With the Cost Plus Contract the contractor is paid based on an agreed upon percentage of the actual costs to build the home.  The more money you spend on your home, the more you're paying the contractor.  If you decide to use high end finishes, you pay for the upgrades and more to the contractor.  The management agreement does not charge you for having good taste.

Turn Key
With a turn key contract, the builder gives you a fixed price to build the entire house, start to finish.  This type of contract is often generously padded to protect the builder's profit and for any unforeseen costs.  If you desire an exact number, this contract may suit you.  Keep in mind however, that you will not know how much the builder is making or how much is being paid to the sub contractors.  With this type of contract the loan draws go directly to the builder and the builder controls how the money is spent.  The homeowner has no control of the money and incurs additional charges if any changes are made during the building process.  This contract may seem the easiest but it is often the most expensive