The contract you sign with your builder governs your entire custom home project, from how you pay to how changes get handled. Two structures dominate custom home building in Ontario: the fixed-price contract and the cost-plus contract. Each handles budget, risk, and flexibility differently, and understanding the trade-offs is one of the most important steps before you build. Here is a plain-language comparison to help you choose with confidence.
What is the difference between a fixed-price and a cost-plus contract?
The short version: a fixed-price contract sets one agreed price for the whole build before construction starts, while a cost-plus contract charges you the actual cost of materials and labour plus the builder's fee. Fixed-price gives you cost certainty and puts the risk of overruns on the builder. Cost-plus gives you transparency into every dollar spent, but the final number is not locked until the home is complete.
Neither is automatically better. The right choice depends on how well-defined your project is, how much flexibility you want, and how much budget certainty you need.
Fixed-price contracts
In a fixed-price (or "lump-sum") contract, the builder quotes a single price for a defined scope of work. As long as the scope does not change, that is what you pay.
Advantages:
- Cost certainty. You know your number before construction begins, which makes financing and planning easier.
- The builder absorbs the risk of cost overruns on the agreed scope.
- Simpler to budget around, because the price is fixed.
Trade-offs:
- The scope and specifications must be well-defined up front, which requires complete plans and finalized selections.
- Allowances are used for items not yet chosen, and going over an allowance adds cost.
- Changes after signing are handled through formal change orders, which adjust the price.
Cost-plus contracts
In a cost-plus contract, you pay the actual cost of materials and labour, plus the builder's fee, which is usually a fixed percentage or a set management fee.
Advantages:
- Full transparency. You see the real cost of every material and trade.
- Flexibility to make decisions and changes as the build progresses.
- Well suited to complex or highly custom projects where the scope is hard to pin down in advance.
Trade-offs:
- Less budget certainty, because the final cost is not fixed until the home is complete.
- Requires a high degree of trust and, ideally, a clear cap or budget target to manage the total.
- More involvement from you in reviewing costs along the way.
Fixed-price vs cost-plus at a glance
| Fixed-price | Cost-plus | |
|---|---|---|
| Budget certainty | High — price set up front | Lower — final cost varies |
| Cost transparency | Priced as a package | Every dollar itemized |
| Flexibility | Changes via change orders | Change as you go |
| Who carries overrun risk | The builder | The homeowner |
| Best suited to | Well-defined plans | Complex, evolving projects |
Which contract is right for your build?
A fixed-price contract tends to suit homeowners who have complete plans, finalized selections, and a firm budget they need to protect. A cost-plus contract can suit highly custom or complex builds where flexibility matters more than a locked number, and where the homeowner wants visibility into every cost. Many builds land somewhere in between, and the honest answer often depends on how finished your design is when you sign.
What every custom home contract should include
Whichever structure you choose, the contract should spell out the details that protect both sides. Before you sign, confirm it clearly covers:
- Scope of work: what is included, what is excluded, and where allowances apply.
- Payment schedule: tied to completed milestones, not arbitrary calendar dates.
- Change order process: how changes are priced, approved, and documented.
- Timeline commitments: expected start and completion dates, with defined consequences for delays.
- Warranty terms: confirmation of Tarion enrollment and any additional builder warranties.
Be cautious with any builder who resists putting these details in writing or pressures you to sign quickly. A confident builder knows a thorough contract protects everyone. For more on this, see our guide to the Tarion warranty in Ontario.
How WrightHaven approaches pricing and contracts
Whatever the structure, our goal is the same: no surprises. That means itemized pricing that separates hard costs, soft costs, and contingency; payment tied to completed milestones rather than arbitrary dates; and change orders that are priced and documented in writing before any work proceeds. The best way to understand which contract structure fits your project is a direct conversation about your plans and budget. Talk to our team and we will walk you through the options honestly.
Related reading: How to choose a custom home builder, the custom home design process, and the Tarion warranty explained.
Frequently asked questions
Is a fixed-price or cost-plus contract better for a custom home?
Neither is universally better. Fixed-price offers budget certainty and works best when plans and selections are complete before construction. Cost-plus offers transparency and flexibility, which suits complex or evolving projects. The right choice depends on how well-defined your design is and how much budget certainty you need.
What is an allowance in a fixed-price contract?
An allowance is a budgeted amount set aside for an item you have not yet chosen, such as flooring or lighting. If your final selection costs more than the allowance, the difference is added to your price; if it costs less, you are credited. Finalizing selections early reduces reliance on allowances and keeps your fixed price closer to the final number.
How are changes handled once construction starts?
Changes are handled through a formal change order that documents the work, the cost, and the schedule impact, and that both parties approve before the work proceeds. A clear change order process is one of the most important things to confirm in any contract, regardless of structure.
Should I have a lawyer review my construction contract?
It is a wise step. A construction contract governs scope, payments, change orders, timelines, and dispute resolution, and having a lawyer review it before signing helps you understand your obligations and protections. A reputable builder will welcome the review rather than rush you past it.
Talk through the right contract for your build
The best contract is the one you fully understand. If you are planning a custom home in Wellington County and want a clear, honest breakdown of your options, contact our team or explore our custom build process to see how we work.