Factors That Can Lead to Price Adjustments in Home Building Contracts

3/10/20242 min read

person writing on brown wooden table near white ceramic mug
person writing on brown wooden table near white ceramic mug

When entering into a home building contract, it's important for homeowners to be aware of the various circumstances that can lead to an increase in the contract price. These factors include change orders, material and labor cost increases, market conditions, and unforeseen challenges. By understanding these potential factors and maintaining open communication with their builder, homeowners can better navigate the process and ensure that they are prepared for any potential price adjustments.

Change Orders

One common reason for an increase in the contract price is the inclusion of change orders. Change orders occur when the homeowner requests a modification or addition to the original scope of work. These changes can range from minor adjustments to major alterations, and they often result in additional costs for materials, labor, and potentially even design and engineering fees. It's important for homeowners to carefully review and consider the impact of any change orders on the overall contract price.

Material and Labor Cost Increases

Another factor that can lead to price adjustments is the fluctuation in material and labor costs. The cost of construction materials, such as lumber, steel, and concrete, can vary due to market conditions, supply and demand, and even global events. Similarly, labor costs can be influenced by factors such as changes in minimum wage laws, labor shortages, or increases in union rates. Home builders may include provisions in the contract to account for these potential cost fluctuations.

Market Conditions

The housing market is constantly changing, and market conditions can impact the contract price of a new home. In a seller's market, where demand exceeds supply, home builders may have more leverage to increase prices. Conversely, in a buyer's market, where supply exceeds demand, builders may be more willing to negotiate or even lower prices to attract buyers. Homeowners should be aware of these market dynamics and consider how they may affect the contract price.

Unforeseen Challenges

During the construction process, unforeseen challenges can arise that may require additional time, resources, and ultimately, additional costs. These challenges can include issues with the site, such as poor soil conditions or unexpected underground obstacles, as well as changes in local building codes or regulations. Homeowners should understand that these unforeseen challenges are often beyond the builder's control and may result in price adjustments.

Price Escalation and Cost-Sharing Mechanisms

Some home building contracts may include provisions for addressing fluctuations in costs through price escalation or cost-sharing mechanisms. Price escalation clauses allow for adjustments to the contract price based on changes in material or labor costs over time. Cost-sharing mechanisms, on the other hand, distribute the burden of cost increases between the homeowner and the builder. These provisions can help protect both parties from unforeseen cost fluctuations.

In conclusion, homeowners should carefully review the terms of their home building contract and maintain open communication with their builder to understand potential factors that could lead to price adjustments. By being aware of change orders, material and labor cost increases, market conditions, and unforeseen challenges, homeowners can navigate the process more effectively and ensure that they are prepared for any potential changes in the contract price.