The cost to build a new custom house with a set price contract is generally equal to or sometimes below the cost to purchase a new spec built home, this is because the typical profit margin that a spec builder would factor into the price of a new home is equivalent to the profit margin incorporated into the per square foot building cost. The reason for this is that there are similar risks involved with each type of house, if a builder is locked into a fixed price contract then they need to have margins for fluctuations included in that amount whether it is a custom house or spec build.

Most often the lowest price that can be achieved for a new home is through a ‘cost plus’ contract between the builder and the new homeowner. This agreement removes the risk of price fluctuations from the builder and allows them to charge a management fee at a set rate based on the overall cost of construction. The homeowner also has total control of the design, materials and finishes of the new home as the choices they make can alter the budget for the house without requiring an adjustment to the contracted amount for construction, the builder simply charges a fee on the total cost of what the homeowner wants to build. This contract does place risk on the homeowner to ensure that they are selecting materials and finishes that stay within their original budget.

Harbour Oak Homes uses the following rates for their cost plus contracts for new custom homes, additions and renovations it’s clients. The reason for the sliding scale approach to the construction fee is that there are typical overhead and management costs that are incurred on each project regardless of their size, the larger projects are able to have these costs absorbed into their bigger budgets.

Construction costs are broken out into two types, soft costs and hard costs, they are both included in the cost of construction for the ‘cost plus’ contract calculations and are typically both included in the ‘set price’ contract. Any costs for the purchase of the building lot, or financial costs incurred with carrying it until construction of the house is completed, are typically excluded from the construction costs as the homeowner needs to purchase the lot outside of the construction contract. A general description of the cost types are as follows;

Soft costs; these are costs not incurred during physical construction on site, they include design and engineering fees, new home warranty, building permit fees and service connection charges.

Hard costs; these are the costs incurred for the materials, equipment and labour required to build the new home, they include excavation and trucking, concrete, lumber, windows, doors, interior and exterior finishing materials and all labour required to install these items on site.