‘Fixed’ pricing is a term that we all often hear casually mentioned by builders and new home salespersons. If you’ve been looking at different builders, you will have noticed that most builders have a big ‘Guarantee’ stamp promising their clients 100% free and fixed quotations.
So, in this article, we’re going to try to de-mystify the whole ‘fixed’ pricing topic and look at some of the main issues with this terminology. You’ll be able to easily understand WHAT fixed pricing means and what you can do to minimise unexpected extras.
Read on to find out more about fixed pricing, the pitfalls and how to ensure you don’t get any surprises!
QUOTES & CONTRACTS
Ok, so depending on the situation and the process each builder follows, every building company will offer their clients some form of fixed price quote or contract. This type of contract is standard and, in most cases, required by law.
But firstly, let’s look at the two primary documents or agreements that are used in the building industry today.
Usually, if you’re agreeable with the quote, the builder will encourage you to get started by signing a contract.
AND THE CONTRACT?
A contract is a formal and binding document. It is an agreement between the builder and a client to have their house constructed following a set of plans and a specification for a nominated figure. The client is required to pay a minimum deposit – typically about 5% of the contract value.
Listed on your contract will be two significant variables. They are Prime Cost Allowances and Provisional Cost Allowances.
PRIME COST ALLOWANCES
Prime costs are usually an ‘allowance’ for different items in your home — for example, cabinetry, floor covering, kitchen appliances. If you go over the allowance listed, you will be required to pay the extra cost.
PROVISIONAL SUM ALLOWANCES
Provisional sum allowances are typically used to cover onsite works that the builder needs to clarify. For example, this could include onsite excavation works, septic systems etc. Again, if the cost goes over the allowance, the client is required to pay the extra.
So, now we understand the difference between a quote and contract. We need to look at what the term FIXED pricing means. As we mentioned earlier, most builders will use this term somewhere in their marketing materials.
But, what does it mean? The answer to the question depends on which side of the home-buying fence you’re on. If you’re on the new home buyers’ side, it means that the figure stated on the quote is the TOTAL amount you will be paying and not a dollar more. But, on the home BUILDERS side, it means what the builder thinks the house is going to cost the client, EXCLUDING variations for things the builder doesn’t know about or has no control over.
This concept of ‘fixed pricing’ is reasonably easy to understand, and most clients will have a basic expectation of a small variation or two.
SO WHAT’S THE CATCH!
Ok – so now we understand the basics of a quote, contract and what fixed pricing is. And you may well ask, what’s the big deal?
So, let’s look at what we find the biggest complaints from clients about their supposed ‘fixed pricing’ they have got from their builder!
- By the time we finalised the ACTUAL price with everything we wanted in it the price had risen over $100,000
- We got a lot of unexpected variations, especially for site works.
- We got charged extra’s for silly little changes during construction
- The provisional and prime cost allowances didn’t cover the actual cost nearly enough.
WHY ARE THERE SO MANY VARIATIONS?
Why a significant discrepancy between the quote or contract prices and what you end up paying? Are all builders’ sharks and are trying to rip clients off?
The answer is no. The issue is that most builders and clients fixate on the PRICE of the home. Understandably, the builder wants to make sure his price is as low as possible, so it is attractive as possible to the customer.
The problem with this approach is that by focusing purely on price, there is minimal emphasis placed on inclusions, the design or the site. For more information on common mistakes made while designing a modular home view our recent article.
In the building industry today, we find that there is a lot of responsibility placed on the new home-owner to identify and let the builder know the potential issues very early on in the process.
OK, HOW DO I GET A TRULY FIXED PRICE?
All this is very daunting and mystifying. You well may ask – what is the use of using a builder if they aren’t going to tell me upfront what it’s going to cost! And, it’s a very valid question. We believe that home sales methods in Australia are stuck in the dark ages!
So, how can you fix the price of your new home and ensure that what you sign up for is what you end up paying?
Well firstly, we recommend you follow the below rules to ensure you minimise the chance of any nasty surprises.
- DON’T sign anything that promises a fixed price unless;
- The builder has checked the site in person and done a soil test.
- Do a thorough analysis of your requirements.
- The builder has investigated any potential council issues.
- Spoken over their INCLUSIONS in detail and ensured you understand them.
- Talked over the EXCLUSIONS in detail and assured you know the potential costs involved in them.
- Ask the builders what other people have ended up spending.
- Don’t focus on the price until later in the process. Get a general ballpark to start with then build it out from there.
THE WESTBUILT PROCESS
Well, you may now be saying. What’s the Westbuilt process? The team here follow a fairly rigid process that ensures our building contracts are TRULY fixed price and we recommend our clients use the following steps. Along the way, our clients experience one of the best, hassle-free and simple building process available today.
- Get a ballpark idea of modular home cost. Speak with our design consultants to discuss what you’re looking for, what’s important to you, etc. The design consultant will provide an approximate idea of what total cost is likely to be.
- Analyse the site and design. If it appears that the price is within your budget, the design consultant will start drilling into your requirements. This process will involve sketching plans, visiting the site and filling in some checklists to ensure we’ve considered everything. The price will be narrowed down to generally within $10-$25,000 depending on your situation.
- The initial investment. If your still comfortable with the price and design at this point we recommend our clients make the Initial Investment. This investment is a small deposit amount of between $2,000 and $3,000 that will allow us to complete the following items.
- Soil test.
- Footing design
- Plumbing design
- Preliminary plans with a VR walkthrough
- Colour Selection and specifications
- Energy efficiency report
- Initial council checks
- Onsite quotes for additional site works
- The Contract Price. Once we have completed all these steps, it is now, and only now, that we can give you a FIXED price. And we mean a guaranteed fixed rate. If you choose to accept this price, we will proceed to sign the contract and lodging your home into the council.
We hope you’ve found this article informative & helpful. As a company, we have set ourselves to provide our clients with an open, honest building experience.
If you’d like to know a bit more about this, please don’t hesitate to get in contact with the team.