A cost plus contract means your contractor gets reimbursed for every project cost plus a profit margin — but it comes in three flavors, and the structural differences determine who carries the financial risk.

Download Your Free Cost-Plus Reality Check Tool

Bill Reid explains cost plus percentage (most dangerous for homeowners), cost plus fixed fee (better protection), and cost plus with guaranteed maximum price (safest hybrid). You'll discover why California banned pure cost plus contracts for residential remodels under Business and Professions Code 7159.5, the industry-standard markup range (15-25%, or $75K-$125K on a $500K project), and the five drift triggers that push projects into cost plus territory. Bill shares seven critical questions to ask yourself before signing, the narrow band of homeowners for whom cost plus genuinely works, and why disaster rebuilds almost always require this structure. This is part one of a two-part series — the decide episode. Episode 57 next week covers tactical execution. Related: Episodes 50, 53. Section 3.202 of The Awakened Homeowner book. Free download: Tale of Two Homeowners story + Fixed Price vs Cost Plus micro-tool. BuildQuest beta at buildquest.co

Understanding time and materials contracts, markup percentages, legal restrictions, and when to walk away from cost plus deals

A cost plus contract reimburses your contractor for every project cost plus a profit margin — but it comes in three distinct flavors, and the difference between them determines who carries the financial risk. In this episode, Bill Reid breaks down cost plus percentage (the most dangerous for homeowners), cost plus fixed fee (better protection), and cost plus with a guaranteed maximum price (the safest hybrid). You'll learn why California banned pure cost plus contracts for residential remodels under Business and Professions Code 7159.5, the five drift triggers that push projects into cost plus territory, and the narrow band of homeowners for whom this structure actually works.

Bill shares the industry-standard markup range (15-25%, meaning $75K-$125K in fees on a $500K project), explains when disaster rebuilds require cost plus by necessity, and provides seven critical questions to ask yourself before signing. This is the decide episode — Episode 57 next week covers execution. If you're staring at a contract right now, this episode will give you the clarity to make the right call for your project.

**What You'll Discover:**

- The three flavors of cost plus contracts and why cost plus percentage creates backwards incentives that reward contractor inefficiency

- Why California Business and Professions Code 7159.5 makes pure cost plus illegal for residential home improvement — and what the exemptions are

- How industry-standard markup of 15-25% translates to real dollars on your project

- The five drift triggers that land projects in cost plus territory: incomplete plans, missing specs, scope changes, rushing to start, deprioritizing price

- Why disaster rebuilds (fire, flood) almost always require cost plus structures

- The three narrow audiences for whom cost plus genuinely works — and why most homeowners don't fit that profile

- Seven go/no-go questions to ask yourself before signing anything

**Related Episodes:**

- Episode 50: The Two Estimating Windows Every Homeowner Must Understand

- Episode 53: The Complete Bid Package — What Must Be In It

- Episode 57: Cost Plus Contracts Part 2 — The Execution Checklist (Next Week)

**Resources:**

- Section 3.202 of *The Awakened Homeowner* book covers the full cost plus framework

- Free download: *The Tale of Two Homeowners* story

- Free micro-tool: Fixed Price vs Cost Plus Decision Framework

- BuildQuest planning platform — reserve your beta spot at buildquest.co

This is part one of a two-part series. This episode helps you decide whether cost plus is right for your project. Next week's Episode 57 covers tactical execution — the nine items that must be in your contract, double-dipping warnings, and the three moves that bend cost plus toward fixed price protection.

Bill Reid is a residential construction expert with 35+ years of experience and the author of *The Awakened Homeowner*. His mission: enlighten, empower, and protect homeowners planning custom builds and major remodels.

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Get the book — The Awakened Homeowner:

https://www.amazon.com/dp/B0F1MDRPK7

Also available on all platforms:

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Free Download — The Tale of Two Homeowners:

https://the-awakened-homeowner.kit.com/09608e1727

BuildQuest Planning Platform:

https://buildquest.co

More resources:

https://www.theawakenedhomeowner.com/

Questions? Email Bill directly:

wwreid@theawakenedhomeowner.com

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Mentioned in this episode:

The Awakened Homeowner Book

The Awakened Homeowner Book

Hey everybody, welcome back. I want to start today with a moment that happens to almost every homeowner in this whole design and construction process. And really a lot of you aren't ready for it. So you've done all that hard work. You've been through the design process. You've issued a bid package. You've gotten your estimates back and you've even gone through a ranking process with your contractors that I talked about in the previous episodes.

And you've even picked one that you want to work with and you're feeling pretty good. And then your contractor slides that contract across the table and the structure of that contract decides who carries the risk on your project from that very moment forward.

Now there's a lot to unpack about that something a little different over the next two episodes. This is a two-part series and today in Episode 56, we're gonna cover what a cost plus contract actually is. The three different flavors of it that exist in the industry and when cost plus makes sense and when it doesn't.

And one really important surprise about whether it's even legal where you live. So by the end of today, you're going to have a clear go or no-go answer for your own project. Then in Episode 57, we'll go deeper on execution. If you've decided cost plus is the path by choice because your contractor only offers it or because you're rebuilding after a disaster.

Episode 57 is the tactical episode, the nine-item checklist that has to be in your contract, double-dipping warnings every homeowner needs to hear, and the three moves that bend the cost plus towards a fixed price contract. And that's going to be next week. So today is the decide episode, next week is the execute episode.

Here's a little bit of quick framing before we get into it. There are two basic ways your contract can be written. One is fixed price. The contractor commits to a number and that number doesn't move unless the scope moves. The other is cost plus. And that one, my friends, is where most of the trouble starts. Cost plus is also called time and materials. It means your contractor gets reimbursed for every expense on your project plus a profit margin on the top. On the surface, that can sound reasonable, and it can even sound flexible. But unless you really understand what you're signing, a cost plus contract is the fastest way I know to lose control of your project. Let's dig into this one.

Let's start with what a cost plus contract actually is because in my experience, most homeowners don't know and they don't know the little details and the nuances that can pop up pretty fast during a project. So you've heard the words. You may have even signed one, but if you ask them to explain it back to you, the description gets fuzzy really fast. And fuzzy is exactly where the trouble starts.

A cost plus contract is mechanically very simple and that simplicity is part of the trap. Here's how it works. The contractor gets reimbursed for every cost on your project. Labor, materials, subcontractors, equipment rental, disposal fees, the porta-potties. I mean every single thing that shows up on your project. All of it.

And on top of those reimbursed costs, they get a profit margin. That's the plus in the cost plus. And of course, that's okay. Contractors need to make money to support their business, to feed their family, to feed all their employees and their subcontractors' families. And there's nothing wrong with that, but we have to be careful how it's all accounted for. So you'll also hear it called time and materials. The same concept, slightly different label.

So here's the cleanest way I can put it. A fixed price contract names a number. A cost plus contract names a method. The industry has a name for this structure. They call it open book. Open book means every cost is documented, every receipt is shared, meaning what the actual contractor is paying their suppliers for it before they put any profit and overhead on top of it.

The contractor opens their books to you. That's the upside, full transparency. The downside, every dollar you see is a dollar you're paying. Okay, that's the real basic mechanics, but cost plus actually comes in three different flavors and the difference between them really does matter a lot.

All right, most homeowners don't realize there are three distinct versions of cost plus and the level of risk varies significantly between them. So let me walk you through. First flavor, cost plus percentage. The contractor's fee is a percentage of total cost. It sounds simple. The contractor adds, let's say 15% on top of every cost on the project, but this is the most dangerous flavor for homeowners. Here's why. Every extra dollar of cost generates extra profit for the contractor. So think about that. If costs go up, the contractor's fee goes up. If the project takes longer, uses more material or runs into complications, the contractor makes more money. The incentive to keep your project lean and on budget is structurally backwards. And that's not really a character flaw on the contractor's part. That's just the math.

Second flavor, cost plus fixed fee. This one's better. The contractor's fee is a flat dollar amount agreed upfront no matter what the total project costs. So example, let's say you're doing a major renovation project of $400,000 and there's a fixed fee of $25,000 management fee on a remodel project. And that's the management fee, that's not their labor fee, that's just their cost to manage the whole process. If they physically work on the project, if it's a one-horse contractor that is physically working and managing a job, they also get paid for their hourly wage, otherwise they'd have to hire somebody else and you'd pay for that. So the contractor still doesn't lose if costs rise in this particular method. Their costs are still reimbursed, but they don't gain extra fee either, which removes the worst of the incentive misalignment.

Third flavor, cost plus with a guaranteed maximum price. You'll often hear this called GMP or sometimes GMAX. The contractor still bills cost plus, but with a ceiling. If costs come in under the cap, savings are usually split between you and the contractor. And if costs exceed the cap, the contractor absorbs the overrun unless the scope changes. And the scope can change for a variety of reasons. It could be that you changed your mind. It could be that things were discovered during construction that were not foreseeable. And it could be that the contractor made a mistake on a project and has to repair something. But this is really the safest hybrid. And we're going to go a lot deeper on it in Episode 57. Because if you do end up in a cost plus contract, getting a GMP into it is probably the single most important move you can make.

So quick industry note here, GMP is what most commercial owners insist on and it's standard in AIA contract documents, which is American Institute of Architects. So AIA document A102 is cost plus with a GMP, and AIA contract A103 is cost plus without a GMP. So useful names to know if you're talking to your contractor and you're not necessarily satisfied with their contract documents.

So let me make this concrete. Say you're doing a kitchen remodel. Costs come in at $130,000. Under cost plus percentage, 15%, the fee is $19,500. And if cost had hit $175,000 instead, the fee would jump to $26,250.

Under the cost plus fixed fee at $20,000, the fee is $20,000. Doesn't matter what the costs come in at, the fee doesn't move. Under cost plus with a GMP capped at $150,000, your maximum exposure is $150,000, period. If actual costs would have been $170,000, the contractor has to eat the difference. Same project, same cost, three completely different deals for the homeowner.

The structure really does matter.

Okay, let's talk about what that markup actually looks like in dollars. So industry standard markup range on residential cost plus runs 10 to 25% with 15 to 25% probably being the most common. And keep in mind that these margins, at 15% that's pretty low, at 25% that may seem high.

But when you get into a fixed price contract, there's a good chance that they will build in even a higher percentage because they're assuming all the liability. So if you're in the 20 to 25% range, the reason a contractor will commit to that is because in a sense their profit margin is actually guaranteed. There's no chance of degradation of their profit margin unless they make a major mistake and you have an agreement that they don't get paid for that, which is a whole other thing to talk about some other time.

So on a $300,000 project, a 20% fee is $60,000. In a $500,000 project, the same 20% is $100,000. So that's not a small number, but it's also not necessarily unreasonable. And that fee is what covers the contractor's overhead, their insurance, their supervision, and their profit. And they are running a business and they have payroll, they have a truck fleet, they have tools and trailers and an office that that fee pays for all of it. And not just into the contractor's pocket, but you should know what you're paying for.

So here's something to watch for. A contractor offering well below the typical range looks like a win on the surface, right? 6% fee instead of 15. It could be legitimate. It could also mean they're planning to make up the difference inside the cost line items by hiding profit in subcontract markups, materials handling charges, tool rental fees, places that aren't called out as fee in the contract but are still flowing into their pocket.

So your defense is asking for full disclosure of how every dollar moves through the project. So Episode 57 covers exactly how to do that. So that's the structure, the three flavors, and the markup math. Now, before we go any further, I have to tell you something that surprises almost every homeowner I talk to.

So this piece took me by surprise the first time I researched it deeply and I've been doing this 35 years and still learning. So if it's news to you, you're not alone. In California, a pure cost plus contract for residential home improvement work apparently is illegal. And I might even dig in deeper to this one. If there's any construction law attorneys out there or anybody in the world of construction that knows about this, I would love to get you on and talk about this.

The law sits inside what California calls the home improvement contract statutes. Under those statutes, a residential remodel contract has to include a fixed total price, approximate starting completion dates, a description of the work, a payment schedule tied to the completed work in dollars and cents, plus a stack of consumer protection disclosures. So cost plus apparently violates the law because by definition cost plus can't state a total price upfront. It can't tie payments to completed work value in dollars and cents and it leaves the homeowner exposed to open-ended costs.

The California Contractor State License Board, the CSLB, enforces this apparently, and they can issue citations up to $5,000 per violation. They can suspend or revoke a contractor's license. And here's the kicker. You, the homeowner, can void the contract entirely at your sole discretion. So now think about what that means.

If you signed a cost plus contract for a residential remodel in California and the project is going sideways, you have an exit. The contract isn't enforceable against you the way a compliant contract would be. Now I'm not a construction law attorney and before you take any drastic measures or before you even enter into a cost plus contract, I recommend you consult with somebody who knows more than I do, because I'm just learning this myself. I never did a cost plus contract, fortunately, but I don't know how long that law has been in effect.

That's an enormous protection that most homeowners really have no idea exists.

So you might wonder why California specifically came down this hard. And the reason is pretty simple. They got tired of seeing homeowners destroyed by these contracts. The home improvement contract laws in California were designed to address a pattern. Contractors taking deposits in excess of work performed, projects abandoned midstream, homeowners with no documentation of what they paid for, disputes the homeowner really couldn't win.

Cost plus contracts in residential remodels were repeatedly cited in the CSLB complaint data as the structure most associated with these problems. So the legislature wrote the prohibition. It's not that California thinks cost plus is theoretically bad. It's that the empirical evidence said homeowners were getting hurt at scale.

Now there are some important exemptions you need to know about because they probably matter to your situation. Exemption number one, new construction on vacant land. So if you're building a brand new home from the ground up on previously empty land, that's not home improvement under the code. Cost plus is permitted there. Though even so, you'd want all the protections we'll cover in Episode 57 because frankly, cost plus in a new home construction could even get worse.

Exemption number two, service and repair work. Small emergency repairs, plumbing service calls, things where the scope genuinely can't be defined in advance, those operate under different code sections with their own time and material rules and limited to specific situations.

And number three, commercial construction. The home improvement contract laws only cover residential work between a contractor and the owner or tenant. Commercial projects play under a different rule book entirely. And projects under $500, tiny jobs, are exempt, but few people would use a formal contract for that anyway.

So here's the important nuance. Even on exempt projects, the spirit of the law tells you something. The state of California decided this structure is so risky for homeowners that they banned it for the most common case. That should inform your thinking.

I know not everyone's listening in California, so let me put this in the national context. It looks like most other states permit cost plus residential contracts, but also have some form of consumer protection law on home improvement contracts. So check your state's contractor or licensing board. That's where the rules will be. And California is currently the strictest. Other states have considered similar legislation. As consumer awareness grows, more states may follow.

So wherever you live, the underlying issue is the same. Cost plus shifts the financial risk onto you, the homeowner. The legal landscape just changes the urgency. So here's an action item for you. If you're outside California and your contractor offers cost plus, ask them to point you to the consumer protection rules that apply in your state for cost plus.

A contractor who can do that immediately is a contractor who knows what they're doing. A contractor who hand-waves the question is a contractor you should think very carefully about working with. So whether or not the law applies in your state, the protective intent behind it matters. It points to why cost plus exists in the first place and why some contractors and some homeowners still actively choose it. So let's talk about that next.

All right, so now given all that, you might be wondering why anyone in their right mind uses cost plus at all. And it's a fair question. The honest answer is more complicated than I expected when I first started thinking about this episode. So let me give you the contractor side view first.

Reason number one, it's financial risk-free for the contractor. Every cost is reimbursed. They never lose money on a project. They could blow through their estimate by 50% and they'd still get paid for every hour, every nail, every load of lumber.

And number two, it's estimating burden-free. A real estimate, and we talked about this back in Episode 50, takes anywhere from 40 to 400 hours of professional work to produce. That's on the contractor's dime. Cost plus skips it entirely. The contractor can just go to work and bill. And sometimes that's a red flag. So a contractor who only offers cost plus or who pushes hard for it on a project that should be fixed price is telling you something. Listen to it.

So think about it. On a high-end remodel where the contractor doesn't know what's behind the walls until demolition, the cost plus structure can actually be the more honest contract because it doesn't pretend to know things the contractor can't actually know. So some of the best builders in the country won't take complex remodels on a fixed price basis. They'll do design-build with cost plus and a GMP, and they'll deliver beautiful work. The structure isn't the villain. The structure used badly is.

And there's another path into cost plus that nobody warns you about. Drift. A project doesn't always start in cost plus territory. Sometimes it just ends up there because of choices you may not have realized that you were making. Here's five drift triggers, I call them, to know.

Incomplete plans. The contractor literally cannot price what isn't drawn. So when the plans aren't complete, the contract has to flex and flex usually means cost plus. And there we go back to my messaging for the last year in 50 plus episodes. The quality of your plans drives so many different things. And the higher the quality, the more you could push to a fixed price contract. So if you get an answer like, well, I can't really bid this project, I'll just do it on cost plus, that means you probably don't think your plans are suitable to build a project efficiently or effectively. So be careful there. I've mentioned it a million times.

Drift trigger number two, thin or missing specifications. So without specs, the contractor is guessing on materials, finishes, scope, and Episode 50 covered this in depth. Specs matter. When they're missing, cost plus fills that vacuum and it's sucking it right out of your wallet.

And drift trigger number three, a homeowner who keeps changing their mind. Every undecided choice forces the contract toward "we'll figure it out as we go." That is a recipe for disaster, missed expectations, surprises, blindsides, arguments, degradation of your relationship with your contractor. It just goes on and on and on.

And drift trigger number four that would push you into a cost plus, whether before or during construction, is the rush, right? The biggest predator of a cost plus contract is the phrase, "I just want to get started." The rush is what kills you.

Drift trigger number five, price not being a high priority. Sometimes that's legitimate. Sometimes it's a warning sign. So going back to Episode 53, a complete bid package is the structural antidote to the drift. When you don't have one, you're already halfway into cost plus before anyone has even used those words.

There's one more situation I have to address because it's directly relevant to a lot of you right now. If you're rebuilding after a fire, a flood, or any other disaster, your contract is almost entirely going to be cost plus. And that's the industry standard for insurance restoration work. But the reason isn't the contract, it's the insurance company. Insurance reimburses documented costs as scope is uncovered. So fixed price doesn't fit that model. There's no way to know the full scope until demolition exposes what's actually damaged.

So in California right now, thousands of homeowners are rebuilding from recent wildfire and almost all of them are operating under cost plus structures and many of them don't even really understand it or know it. And here's an opportunity if those of you out there listening happen to be in that situation. Man, would that be a great episode to talk about with the direct experiences you're having. So reach out to me in the show notes and let's do it.

But here's an important nuance. Even though new construction on vacant land is exempt from California's prohibition, the protections you need are the same. So the fact that something is legal doesn't mean it's structured well. So if you're a disaster rebuild homeowner, the nine-item checklist in Episode 57 is going to be doubly important because the insurance company will only reimburse documented costs, which means your bookkeeping discipline is what determines whether you actually get paid. Think about that. Your bookkeeping, not the contractor's, yours.

So that's why cost plus exists and the situations where it shows up. Now let's talk about who it actually works for because there's a narrow band here where this is genuinely the right tool and it's worth knowing where it is.

So cost plus isn't always wrong. There's a real narrow band where it's actually the right choice. And the trick is knowing which side of that line that you're on. Three audiences where cost plus genuinely fits.

Number one, the very experienced homeowner that's built or remodeled multiple times, knows construction billing, can spot mistakes, has the time and discipline to manage it closely. For this person, cost plus can deliver the highest value because they catch the inefficiencies that fixed price would just hide inside the margin, right?

And number two, the truly indifferent homeowner, generally doesn't care what it costs or has a project so small the bidding overhead doesn't really make sense. So I've seen cost plus contracts be used in bathroom remodel projects and multimillion-dollar home projects where the owners, it's not that they don't care how much things cost, they just haven't prioritized that. But even at that set, for people that think they don't care or don't want to track every single thing themselves, be careful because you could get to a point in the project where you start to become uncomfortable with the way it's going when it comes to the billing and the accounting and the bookkeeping. So it's still scary, but if you happen to be one of those people that don't care how much it costs and you just want to get going, be prepared for it to take a lot longer than it should and be prepared for it to cost probably more than you thought, and maybe a lot more than you thought.

And number three, this one's an edge case, the great craftsman, weak administrator builder. So you know the type, phenomenal builder, beautiful work, cannot run an office to save his life. If you have the time and skill to manage the books for him, the work breakdown structure I've talked about, the bills, the receipts, cost plus with that contractor can produce the highest quality result you'll ever own. But you have to know what you're doing. Otherwise you're just funding their disorganization.

So cost plus works for three kinds of homeowners. The very experienced, the truly indifferent, and the one with the great craftsman, weak admin builder. Most of you are none of these.

So let me tell you the cost plus version of a story you've heard me tell before, Ace the Builder. So some of you are going to recognize him if you've been listening. Ace shows up in my book a few different ways and across this podcast because he keeps appearing in real life over and over. And he's a composite, but he's also very real.

Ace the Builder, first conversation, homeowner wants to build a primary suite addition, 500 square feet. Ace says, yeah, $300 a foot, no problem. Homeowner does the math in his head. 500 square feet times $300, $150,000, walks away thinking, okay, I can pull that off.

Now here comes the cost plus part of the story. The homeowner doesn't go to an architect, doesn't get a complete set of plans, throws together some quick sketches, doesn't write specs, doesn't issue a bid package, doesn't run a real bid process. He just signs a cost plus contract with Ace and tells him to start.

Ace starts, bills start flowing in. The plans were rough, so Ace makes a lot of decisions on the fly. Materials change because the specs were thin. Subs add hours because the scope keeps shifting. The framers come back twice because the opening for the new bath wasn't called out clearly. The HVAC sub charges extra because the duct routing wasn't planned. Timeline slips. Six months in, $240,000 spent. Project is about 70% done.

Now here's the part that matters, because this isn't a story about a bad contractor. Ace took advantage of a wide-open contract. Yes he did. The homeowner handed him that contract by skipping plans, skipping specs, and skipping a real bid process. Yes, he did. Both contributed, both made decisions that led there. That's the honest version of the Ace story.

And honestly, that's why I keep telling it. Because if you only blame the contractor, you missed the lesson. The structural choices the homeowner made are what created the opening Ace walked through.

So sit with this for 10 seconds. Do any of these describe where you are right now? Does any of this describe where some of your friends or colleagues have been complaining about their contract or complaining about their project over budget, taking too long? When you start really drilling down into what the root of these problems are, it's very interesting to find out.

So are you anxious to start? Are your plans incomplete? Are your specs missing? Are you new to construction? Pushing for cost plus because price isn't your top priority? If three or more of those describe you, you are not ready to sign anything, let alone a cost plus contract.

If you're the very experienced homeowner, the truly indifferent one, or you have the great craftsman, weak admin builder situation, then cost plus might fit with the protections we'll cover in Episode 57. So if any of this is starting to sound familiar, or if you are sitting there trying to figure out which side of the line you're on, let me give you the framework. Seven specific questions to ask yourself today before you make a final call.

All right, so before you sign any cost plus contract, sit with these seven questions and be honest with yourself. The answers will tell you if you're ready or whether you've got more work to do first.

Number one, how concerned am I about the total cost of the project? It sounds almost a dumb question, but keep that in mind. Some people are renovating because they've lived in their home for 30 years and they just want the best that they can get. And some people have a lot of money. They just want to build their second or third home. But other people are really concerned about the price and have a very limited set of funds. So how concerned am I about the total cost of your project? Very concerned? Then cost plus is the wrong structure for you. Cost plus trades certainty for flexibility and certainty is really what you're after.

Number two, how tolerant am I of not knowing the exact cost before you start? If your honest answer is not really, you walk away from cost plus.

Question three, how concerned am I about the duration of construction? So cost plus structurally rewards delay, whether it's consciously, subconsciously, intentionally, unintentionally, whatever, however you want to word it. You have a deadline? This is the wrong structure, period.

Question four, can I tolerate delays from material supply issues, weather, or unexpected complexities? Cost plus passes those delays directly to your wallet.

Number five, am I willing to invest the time and money to thoroughly document the project? A cost plus contract managed without documentation is just a checkbook with a contractor's name on it. So keep that in mind because there's a pattern here or almost a contradiction that the more thorough the plans you develop and specs gives you more of an opportunity to get a fixed price contract. But the more thorough your plans and specifications also help ensure that your cost plus project could go better too. You can't get around generating a quality set of plans and specs and scope of work.

Number six, is my contractor willing to create a budget and manage costs along the way? If they push back on this, that's your answer about whether to work with them. So keep in mind that a lot of cost plus contractors, good credible contractors at a high level of integrity that do cost plus, will still establish a budget. It's almost like the guaranteed maximum price, but not necessarily. They will establish a budget for the project based on what they can tell off of the plans so that you have some sense and then you work off of that budget. But you have to be careful because it's not necessarily part of the contract.

Seven, do I have a good feeling about my contractor candidates or am I just selecting the cheapest one? So cost plus magnifies whatever you got wrong about contractor selection. Trust matters more in cost plus than in any other contract structure because the contract itself doesn't really protect you. The contractor's character does.

If most of your honest answers point toward, I want certainty, I have a deadline, I'm new to this, cost plus is the wrong structure. If they point toward, I'm experienced, I have time, I trust this contractor, total cost is genuinely secondary, cost plus might fit with the protections coming in Episode 57. So that's your framework. Print those seven questions out, sit with them. Talk them through with your spouse, your design team, anyone you can trust, then make your call.

All right, so let's go ahead and wrap this up.

A cost plus contract, also called time and materials, reimburses your contractor for every cost they incur plus a profit margin. It comes in three flavors. Percentage, fixed fee, and cost plus with a guaranteed maximum price, the GMP. Percentage is the most dangerous for homeowners. GMP is the safest hybrid. Markups typically run 15 to 25%. So on a $500,000 project, that's $75,000 to $125,000 in fee.

So if you want to go deeper, Section 3.202 of my book, The Awakened Homeowner, has the full framework. I'll drop the link in the show notes. And while you're there, grab the free download, which is my story, the Tale of Two Homeowners. It's a quick read that will save you a lot of pain before you even start.

And I'm starting to build little micro tools for you. So that will also be a free download that you can just click in the show notes, download the little micro tool to help you decide if you're a fixed price or cost plus candidate. And that should help you so you don't have to print anything out and write anything down. And if you go back to the last few episodes, I've done the same thing and I haven't done that in all the episodes because this is just me developing as a podcaster and an assistant, construction therapist, whatever you want to call me.

And if you're in the planning stage of a custom home build or major remodel, take a look at the BuildQuest application I'm developing. It's not out yet. It's a platform I've been developing for homeowners exactly like you and you can sign up as a free beta tester at buildquest.co. And we're getting closer and closer. What a process that is.

So if this episode helped you, please share it with someone who's staring at a contract right now. That's the homeowner that needs us most. And send your questions in on Instagram. I think I'm going to stop posting on Facebook. I've just, I've never been a Facebook fan. I'm going to focus on Instagram and the private community that I'm building. And you can also go to the website or just email me directly at wwreid@theawakenedhomeowner.com. I read everything that comes in and your questions shape future episodes.

So coming up in Episode 57, part two of the cost plus arc. If you decide cost plus is the path by choice, by contractor preference, or because you're rebuilding after a disaster, Episode 57 is the tactical episode. The nine items that absolutely have to be in your contract. Three double-dipping warnings every homeowner needs to hear and the three moves that bend cost plus towards fixed price.

And that's it for today. And as always, I'm Bill Reid, Your Home Building Coach. I'm here to enlighten, empower, and protect you. Now let's go make it happen.