Most overruns trace to three things: a contract that never locked a final number, allowances set too low to look competitive, and changes agreed verbally and priced afterward. Close all three and the budget mostly holds. Sign a fixed price contract, check every allowance, and price every change in writing before work starts.
The short version
- A fixed price turnkey contract moves estimating risk to the builder.
- Allowances set low make a bid look good and cost you later at the supply house.
- Every change should carry a written price and a schedule answer before anyone starts.
- Decide finishes before construction, not during it.
- Ask for the exclusions list. Assumptions are what become invoices.
What actually causes cost overruns on a custom home?
Rarely the construction itself. Overruns usually come from the paperwork: a contract with no firm total, allowances deliberately set below what you will actually spend, and mid build changes agreed on a handshake and priced after the fact. Each one is avoidable before a shovel touches dirt.
John Worlund’s summary of what clients tell him about other builders covers all three.
“The main thing is overcharging, underbidding and then charging extras, and not being clear, and not having a set turnkey price. Instead the job just goes on and on and they get charged more and more.”
How does the contract structure protect your budget?
A fixed price turnkey contract commits the builder to a number before construction, so an estimating mistake is his problem rather than yours. Cost plus does the opposite: you reimburse actual costs plus a fee, and the total stays open until the last invoice. Many lenders decline cost plus for exactly this reason.
Anasazi’s fixed price is signed three ways, by the homeowner, by Anasazi and by the bank, and sits behind a ten page specification listing every included and excluded item, initialed page by page.
That document is the budget control. When something is not in the house and you expected it, there is one place to look rather than an argument.
Fixed price versus cost plus home building contracts
Why do allowances blow budgets, and how do you check them?
An allowance is a dollar figure carried for something you have not chosen yet, usually appliances. Some builders set them low so the contract price looks competitive, and you find the gap months later at the supply house. Check what each allowance is actually set at, since the presence of one tells you nothing on its own.
Appliance packages on past Anasazi projects have run from roughly $8,000 to about $30,000. An allowance set near the bottom of that range is telling you what the builder assumed you would buy.
Do this before signing: for every allowance in the contract, go look at what you actually want and price it. If the two numbers do not match, the difference is not a surprise, it is a decision you get to make now.
What is included in a custom home builder’s quote?
How should changes be handled once construction starts?
In writing, priced, and signed before the work begins. At Anasazi a change becomes a separate contract with its own fixed price, quoted to you first, then submitted to the bank and normally paid through the regular 30 day draw. Nothing gets adjusted quietly against the original number.
“The homeowner wants something, wants a change,” John says. “At that time we figure out what they want and then we give them a price. At that point they say yes or no.”
Ask about schedule as well as cost, because the two are separate answers. Some changes run alongside the house without touching the timeline. On one project a set of long retaining walls with staircases between them was added mid build and the house never slowed, because the work was outside. Others do move the date. A good builder tells you which before you commit.
The most expensive version of this is worth knowing. About six weeks into one build, a client’s wife arrived on site with an interior decorator. John got off the roof, drove to where the husband was, and told him plainly that what they wanted would add two months and about thirty percent. The husband decided to go ahead. It took the extra two months and cost the extra hundred thousand, almost exactly as quoted.
The lesson is not that changes are bad. It is that the number should arrive before the work does.
How to handle changes during custom home construction
What can you do before construction to protect the budget?
Finish your selections. Every decision made before the slab is poured is a decision that cannot become a change order later. This is why Anasazi runs the selections session in detail and takes clients to the supply houses rather than leaving them to picture a tile from a catalog.
Two other pre construction habits help. Get the exclusions list and read it, since assumptions are what turn into invoices. And ask about Washington State energy code compliance, which adds roughly $20,000 to $30,000 and is the cost John says clients least expect because it never looks like a line item.
Washington energy code and what it adds to your build
Common questions about custom home budget overruns
How much contingency should I hold?
Under a fixed price contract with a firm specification, the contingency you need is mostly for changes you choose to make. Discuss a realistic figure with your builder and your lender.
Can a builder charge me for something he forgot to bid?
Under a fixed price turnkey contract, no. That is the practical protection the structure buys you.
Do change orders delay the build?
Sometimes. Exterior work often runs parallel to the house with no schedule impact. Interior changes are more likely to move the date. Ask before approving.
What is the most common surprise cost?
Items assumed to be included that were not: landscaping, fencing, window coverings, and driveway scope.
Is it cheaper to make changes later?
No. Changing a decision after the related work is built means paying for it twice.
The cheapest way to control a budget is to settle the specification before construction. Talk to John about what that looks like on your project, or read how the pricing stage works and what a fully custom build includes.
Related: How much does it cost to build a custom home in the Tri-Cities? · How to work with a builder on a limited budget
