Most comparison exercises are very superficial. Three good firms, good references, good numbers. But the numbers were never based on the same assumptions. And therefore the differences that in the end would have made a difference were never exposed.
Start with the business model, not the portfolio
Searching for custom home builders in Raleigh Durham yields a list of home builders that offer custom homes in various formats. Many of the listings feature photos of custom homes but few of the listings feature homes of similar quality and character. Most custom home builders offer semi-custom homes in addition to fully custom homes. Some builders offer custom homes on a production basis while others offer custom homes on a true custom basis. There are also custom home builders that act as brokers for custom home construction. In general, custom home builders fall into three categories, true custom home builders, semi-custom home builders, and custom home brokers.
Some production builders offer custom services while other brokers offer full custom services. These builders would carry different cost structures and have different failure modes. Thus, it would be good to ask a custom home builder how many new homes they start each year, how many project managers/superintendents they have, and then what the ratio of the two numbers is for each builder.
Financial stability signals worth checking
- Whether the builder can supply a bonding capacity letter, even if a bond is not required
- How long the firm has held its current trade relationships, and whether key subs are paid on a predictable cycle
- Whether draw requests are tied to verified completion or to a calendar
- Lien waiver practice, specifically whether conditional waivers are collected from every tier before each draw releases
Compare contract structures on equal terms
The largest variable in a custom home budget is the risk of the unknown. Who takes on this risk depends on the contract type. Thus, the contract type must be treated as a contingency when comparing fixed price offers with cost-plus offers.
| Structure | Risk position | Suits | Watch for |
| Fixed price | Builder carries overrun risk and prices it in | Fully documented plans and finalized selections | Thin allowances that convert into change orders |
| Cost plus fixed fee | Owner carries overrun risk | Complex sites, renovations, evolving scope | No ceiling and weak incentive to buy competitively |
| Cost plus with guaranteed maximum | Shared, capped at the maximum | Owners who want transparency plus a limit | How savings below the cap are split |
| Percentage of cost | Owner carries overrun risk | Rarely advisable on custom work | Fee grows as the budget grows |
Normalizing the allowance schedule
Rebuild each of the bottom lines of the proposals for comparison against the same allowance schedule for the various items (cabinetry, plumbing fixtures, tile, lighting, flooring, appliances, landscaping, etc.). The resulting bottom line numbers for each builder, after adding back the builder’s fee for each, should reveal significant differences between the various builders, which would likely be due to real differences in the methods and approaches that each builder employs (i.e., in the framing, in the mechanical design, in the site work, etc.). These differences should be reviewed in considerable detail.
Weigh preconstruction capability heavily
Cost for alternates is established prior to the issuance of permits for a project. Builders who are involved in the schematic design phase can establish a cost for alternates at that time. In turn, the structural engineer can be coordinated with the architect’s intent and the builder can identify site specific conditions which may affect the cost of the foundation for the home.
To test a builder’s design ability, ask them what changes they would make to the current set of drawings to reduce the cost of the house while still achieving a high quality finish. The more detailed their answer the better. Suggest changes to roof geometry, the stepping of the foundation walls, the routing of the ducts, and the way that the windows are scheduled. The less detailed their answer the more likely that builder is to be a cost estimator rather than a designer/builder. If you want a benchmark for how that conversation should sound, put the question to established Raleigh Durham custom home builders who bring their own design staff to the table before pricing begins.
Questions that separate planners from bidders
- What geotechnical or survey work do you require before pricing the foundation?
- How is the mechanical system sized, and by whom?
- What is the lead time on the longest-lead item in this design, and when must it be ordered?
- Which assemblies in these plans have you built before, and where?
Verify construction quality where it is still visible
You look at a finished house with wonderful cabinetry and trim. But a home of this quality can be hiding many problems. Go to the site of the custom home builder and look at a house that is at the dry-in or rough-in stage. Look at the framing, are the corners square and have all the nails been driven in properly. Are all penetrations (such as where utilities come through the wall) done properly. Is the mechanical work routed sensibly. Are all the details of the flashing (where the water runs off) done properly. Has the site been properly swept.
Ask how the firm handles third-party inspection. A confident builder will want outside verification of the work they have done, and thus would welcome the services of a third-party inspector, conducting activities such as blower door testing and thermal imaging, and serving as the Owner’s Inspector at the foundation, rough-in and pre-drywall stages of construction. Resistance to such outside verification of their work is a red flag.
Test the change and communication process
The majority of changes to a custom home occur after construction has begun. Therefore, it is very important to have any changes to the home’s plans approved by the homeowner and priced by the builder prior to the work being done. This allows the homeowner to control the cost of any changes to the home’s plans. Builders that issue change orders after the work has been done or list them all in a final reconciliation are taking control of the cost of changes to the home’s plans from the homeowner.
Request a sample change order, a sample schedule with milestones and a sample of their monthly report from an active project (numbers to be redacted). What they normally distribute as opposed to what they can produce on the spot is telling.