Our custom home construction agreements are written in plain english and are easy to understand, but we encourage our customers to seek the advice of their attorney if they have any legal questions. The following are three basic types of construction contracts that we have used. Each has applications to different types of situations.
The most common and also the simplest arrangement is called a “turnkey” contract. This means that the builder requests and initial down payment, maintains possession of the lot, and provides construction financing. When the home is complete on or before the agreed upon date, the buyer pays the balance of the contract amount plus any allowance overages and the property is transferred to them.
A Cost-Plus contract is normally used on more expensive homes where the buyer wants the freedom to make more changes. The buyer retains title to the property and makes arrangement for their own construction financing. The builder submits draws to the buyer and the buyer's bank on a monthly basis. The project is bid at the builder's cost plus a percentage for the builder's profit (normally 10%). The buyer is also charged either a percentage to cover the builder's overhead or these items can be itemized on the draw . In either case, the costs to be included must be well defined in the contract.
This is an alternative to the above methods that allows the buyer to retain title to the property while having the advantage of a fixed cost with the allowances in the turnkey contract. The buyer would also provide the construction financing. This type of contract lays out a schedule for draws of pre-specified amounts upon the completion of distinct phases of the project with the final draw being made upon completion of the project. An ideal use of this type of arrangement is if the buyer owns acreage in the county and may have other structures already in place which would make it infeasible for them to simply deed the property to the builder.
Allowances provide a budget for the customer for specific features of the home that they are free to choose while the home is under construction. Wary homebuyers often question whether the amounts budgeted for allowances are sufficient. To help allay these fears, we strive to keep our speculative homes on a strict budget. The customer can then visit these homes to get an accurate picture of what our allowances will buy. We encourage customers to adjust allowances to cover preferences they suspect will vary from this standard budget to give them and the bank a more accurate picture of what the final price will be. Any overage or underage of these allowances is collected or refunded at closing.
The allowance amounts include all costs related to the item. For example, carpet would be a part of floor covering. The calculated amount would include the cost of the carpet and padding with a 10% waste factor, installation, and sales tax. If the customer selects carpeting that is of the same price and is in the same locations as stated in the specifications, the cost should be close to the allowance. The following is a list of our typical allowances though others may be included:
Once the plans and specifications have been fully defined, the price can be determined. Ezell-Morgan uses a sophisticated computer program that breaks the project down into about 100 different categories and subcategories. The program is constantly updated with the latest prices for material and labor along with data from an integrated job costing system.