‘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 to design your first or next modular home, 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.
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.
THE QUOTE
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.
FIXED PRICING
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, provided there are no variations made to the design once the design has been signed off on.
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 home buyers will have a basic expectation that they may want to request a variation or two to the design and may need to pay extra for this.
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?
Well, let's look at the biggest complaints we have heard from our clients about their supposed ‘fixed price’ that they have received from other builders.
- "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 for silly little changes during construction."
- "The provisional and prime cost allowances didn’t cove the actual build cost."
WHY ARE THERE SO MANY VARIATIONS?
Have you ever experienced a significant discrepancy between the quote or contract price and what you ended 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 as well as 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 of this may seem a bit daunting and mystifying. You well may ask – why should I trust a builder if they aren’t going to tell me upfront what it's going to cost?
This is 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 modular 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.
- A thorough analysis of your requirements has been carried out with the builder.
- The builder has investigated any potential council issues.
- The builder has explained 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 builder what other people have ended up spending for a home similar in style and size as what you are planning to build.
- 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.
READY TO START DESIGNING A MODULAR HOME?
If you think that building a modular house might be the best option for your next home, talk to the team at Westbuilt.
We have been designing and building stunning modular homes since 1993. The construction process of a modular home is very different to that of a conventional home, giving you greater control over the construction time, the quality and the timeframe.
To learn more about modular design and construction, book a no obligation consultation with one of our modular experts. We’d be happy to answer any questions you may have.
