Quick Summary
If you are building a home on your own land, the construction contract you choose fixed-price or cost-plus - can significantly impact your final cost, stress level, and overall experience. This guide explains how each contract works, where cost overruns commonly occur, and why most families benefit from the predictability of a fixed-price agreement, especially when building on land in Oklahoma.
When preparing to build a home on your own land, one of the earliest - and most consequential decisions you will make is how your builder structures the construction contract.
Most residential construction agreements fall into one of two categories:
- Fixed-price contracts
- Cost-plus contracts
At Two Structures Homes, we have built homes across Central Oklahoma using both fixed-price and cost-plus contracts and have reviewed numerous competing bids and project budgets over the years. We have seen the benefits, the risks, and the long-term financial impact each structure can have on homeowners. What follows is a neutral, experience-based guide, particularly relevant for families building on raw or partially improved land in Oklahoma.
What Is a Fixed-Price Contract?
A fixed-price contract provides the homeowner with a defined, all-inclusive price for the completed home, assuming no changes are made during construction.
Under a fixed-price contract:
- You know your total cost upfront
- Your lender knows the exact budget
- Your loan amount is predictable
- Your monthly payment is predictable
For most families, especially those building on their own land, this level of certainty is invaluable.
The Builder Carries the Risk - Not the Homeowner
With a fixed-price contract, the builder is responsible for delivering the home at the agreed price. If material costs increase, labor pricing changes, or trade partners make mistakes, those costs are absorbed by the builder - not passed on to the homeowner.
During the COVID era supply disruptions, for example, framing labor and lumber costs more than doubled. Although this compressed margins for builders across the industry, every Two Structures Homes client under contract paid the original, promised price.
That protection is one of the primary reasons many homeowners choose a fixed-price structure.
What Is a Cost-Plus Contract?
A cost-plus contract charges the homeowner for:
- The actual cost of building the home
PLUS
- A builder’s fee, often calculated as a percentage of total cost
While cost-plus contracts are often described as “transparent,” they shift nearly all financial risk from the builder to the homeowner.
Why Low Initial Pricing Can Be Misleading
Some builders intentionally present artificially low pricing to win a project, knowing they cannot realistically deliver the home for that amount.
We have a common saying in our business: “The vendor who forgot the most is the cheapest.”
This is especially common when reviewing competing material or trade bids. A low bid may appear attractive until a detailed review reveals that key materials, scopes of work, or allowances were simply omitted. Once those missing items are added back in, the “cheapest” bid is no longer the best value - or even competitive.
In a cost-plus structure, these omissions are not absorbed by the builder. They are passed directly to the homeowner later, often as unexpected cost increases that slowly erode the original budget.
Budgets Can Spiral Quickly Under Cost-Plus
We have seen cost-plus projects exceed budgets by $60,000 or more.
In one case involving another builder, a family had no meaningful guardrails around spending, and the builder had no incentive to control costs. As expenses escalated, the project exhausted available loan funds before construction was complete. The bank required a workout plan simply to finish the home. Once completed, the buyers could not qualify for the new, higher loan amount - and they ultimately had to sell their dream home.
While extreme, this scenario is not uncommon in cost-plus arrangements. A few overruns, several upgrades, or minor miscommunications can quickly push costs beyond what a homeowner can absorb.
The Buyer Must Audit Every Invoice
Because all costs are passed through, cost-plus contracts require homeowners to closely review:
- Every invoice
- Every material return
- Every labor charge
- Every trade bid
- Every change order
- Some cost-plus builders even pass through non-competitive subcontractor and trade pricing or inflated invoices because the buyer - not the builder - is paying the bill. Without the cost discipline of a fixed-price agreement, there is little financial incentive to aggressively protect the homeowner’s budget.
For many families, this creates administrative burden, stress, and financial unpredictability - the opposite of what they expect when building a home.
Unknown Site Conditions Can Become Extremely Expensive
This is especially relevant in Oklahoma, where acreage, former farmland, infill lots, and older properties often contain decades of undocumented subsurface conditions.
Even with soil testing, no builder can know exactly what lies beneath the surface. Properties in this region may contain:
- Subsurface rock
- Buried concrete
- Abandoned septic systems
- Debris pits
- Unstable fill dirt
- Old footings or slabs
Nearly all builders, including Two Structures Homes, exclude truly unknown site conditions from fixed-price contracts because it is impossible to assign a cost to conditions that cannot be observed in advance. This is standard industry practice.
The difference lies in how everything else is handled.
- Under cost-plus, the homeowner pays for every unknown and every surprise.
- Under fixed-price, the homeowner pays only for truly unforeseeable, extraordinary conditions - everything else is covered.
Why Two Structures Homes Prefers Fixed-Price Contracts
While cost-plus contracts can be appropriate for very high-end, highly custom homes or for properties with substantial unknowns where a builder is unwilling to assume the risk of land development and site preparation, fixed-price contracts offer clear advantages for most families building on their own land.
1. Budget Clarity From Day One
Most families build around a target monthly payment. Fixed-price contracts provide the clarity needed to plan confidently and secure financing without surprises.
2. Better Builder Incentives
Under a fixed-price structure, the builder’s profit does not increase when costs increase. That creates alignment and accountability. We are motivated to:
- Build efficiently
- Select cost-effective trades
- Reduce waste
- Avoid delays
- Protect your budget
In contrast, cost-plus builders paid a percentage earn more when costs rise, creating an inherent conflict of interest.
3. Clear Scope and Documentation
To offer a true fixed price, the builder must:
- Engineer the home upfront
- Clearly document specifications
- Define scope in detail
- Reduce ambiguity
- Establish shared expectations
This upfront work minimizes misunderstandings and protects the homeowner.
4. No Surprise Charges at Closing
We routinely see cost-plus buyers arrive at closing with tens of thousands of dollars in unplanned charges they did not fully understand as they accumulated.
Fixed-price contracts prevent this. All changes must be formally requested, documented, approved, and priced before they are added.
When Cost-Plus May Make Sense
Cost-plus contracts can work well for a smaller segment of buyers, including those who:
- Do not have a strict budget
- Want maximum design flexibility
- Are comfortable auditing invoices
- Anticipate frequent design changes
- Are building a highly custom, non-standard home
For these buyers, cost-plus offers flexibility - but it is not the typical scenario for most families building on their own land.
Frequently Asked Questions
Is a fixed-price contract really fixed?
Yes - so long as the scope of work does not change. Any homeowner-requested changes are priced, documented, and approved before work proceeds.
Why would a builder prefer cost-plus contracts?
Cost-plus reduces the builder’s financial risk, particularly on highly custom homes or challenging properties with significant unknowns.
Can cost-plus ever cost less than fixed-price?
In rare cases, yes - but only when costs are tightly controlled, the scope remains stable, and very few changes occur. Even then, the savings are often marginal. Most cost overruns happen gradually and are not obvious until late in construction, when the homeowner has little ability to course-correct.
It is also important to understand why some cost-plus proposals appear less expensive upfront. In many cases, the lower price is not the result of efficiency, but of inexperience or undercapitalization. Some builders charge below industry-standard fees or operate on unusually thin margins because they lack the systems, capitalization, insurance coverage, or operational structure of a fully established building company.
While this can make an initial proposal look attractive, it often increases risk for the homeowner. Without adequate financial reserves, proper insurance, or disciplined cost controls, those builders are more likely to pass unexpected costs through to the buyer later in the process.
Do lenders prefer fixed-price contracts?
Most construction lenders prefer fixed-price contracts because they reduce loan risk, budget uncertainty, and funding disruptions.
Is cost-plus better for highly custom homes?
Cost-plus can make sense for very high-end, non-standard homes where pricing every detail upfront is impractical and the buyer has financial flexibility.
Final Thoughts: Predictability vs. Risk
For the majority of homeowners, a fixed-price contract provides:
- Predictable budgeting
- Reduced financial stress
- Clear expectations
- Protection from market volatility
- Fewer day-to-day financial decisions
- A smoother experience from start to finish
Cost-plus can work, but it requires financial flexibility, active oversight, and a tolerance for risk that many homeowners do not anticipate.
A home should be a joyful investment, not a budgeting surprise. For most families, the fixed-price model remains the most stable and predictable way to protect that experience. If you are considering building on your own land, understanding the contract structure early - and how it aligns with your budget and risk tolerance - can prevent costly surprises later in the process.