MoneyLifeCalcThree builders look at the same house and come back with three prices that are tens of thousands of dollars apart. It is tempting to pick the lowest and move on. Usually, though, the bids differ because they are describing three slightly different houses. Comparing them fairly means making sure each one is pricing the same thing.
Start with the same plans and the same specifications
Give every builder an identical set of drawings and an identical written list of what goes into the house: the type of windows, the roofing, the siding, the flooring in each room, the cabinet quality, the countertop material, the plumbing and lighting fixtures, and the heating and cooling equipment. This list is called the specifications. Without it, each builder fills the gaps with their own assumptions, and the lowest bid is often just the one that assumed the least.
Know what kind of contract each bid is
- Fixed price. The builder agrees to build the house in the plans for a set amount. You know the cost up front, and the builder carries the risk of overruns on anything that was defined. Changes you request are priced separately.
- Cost plus. You pay the actual cost of labor and materials plus a fee or percentage for the builder. It is more transparent and more flexible, but the final price is not known until the end unless the contract includes a guaranteed maximum.
A cost-plus estimate and a fixed-price bid are not the same kind of number, even when they look alike. One is a forecast and the other is a commitment.
Read the allowances first
An allowance is a placeholder amount for something you have not chosen yet, such as $15,000 for cabinets or $6 a square foot for flooring. If your eventual choices cost more than the allowance, you pay the difference.
Allowances are the easiest way for a bid to look low. Suppose one builder allows $12,000 for cabinets and another allows $28,000 for the same kitchen. The first bid is $16,000 lower on paper, and it will not stay that way once you visit a showroom. List every allowance from every bid side by side, and adjust each bid to the amount you realistically expect to spend.
Then read the exclusions
Every bid leaves some things out. Common exclusions are the lot, clearing and grading, the driveway, utility connections and fees, permits, landscaping, appliances, and a well or septic system. Ask each builder for a written list of what is not included. An item one builder includes and another leaves out has to be added back before the totals mean anything.
Now use cost per square foot
Once the bids describe the same house, dividing each by the heated square footage puts them on a common scale. Our Cost per square foot comparison calculator does this side by side and shows how far each option is above the lowest.
The same tool shows why the figure needs care. In the calculator's example, a $520,000 option at 3,100 square feet works out to $167.74 per square foot, while a $395,000 option at 1,950 square feet works out to $202.56. The larger one costs 17% less per square foot and $125,000 more in total. Every house needs a kitchen, bathrooms, and mechanical systems, and spreading those costs over more area lowers the average. A low cost per square foot tells you about efficiency, not about what you will pay.
Measure every option the same way. Heated living area is the usual standard, with garages, porches, and unfinished basements left out or listed separately.
Compare more than the price
- Schedule. When can they start, and how long do they expect the build to take? Time costs money when you are paying interest on a construction loan.
- Draw schedule. Payments should follow completed work. See our guide to how construction loan draws work.
- Change orders. How are changes priced and approved? A written process protects both sides.
- Warranty. What is covered, and for how long?
- License and insurance. Ask for proof of both, and confirm the license with your state.
- References. Talk to recent clients, and if you can, visit a house under construction. A tidy, organized site says a great deal.
A short checklist
- Did every builder price the same drawings and specifications?
- Is each bid fixed price or cost plus?
- Have you lined up the allowances and adjusted them to realistic amounts?
- Have you added back each bid's exclusions?
- Is the square footage measured the same way for each?
- Do you understand each builder's schedule, draw schedule, and change-order process?
When the bids are truly comparable, the differences that remain are real: one builder's overhead, efficiency, or confidence against another's. That is the point at which price, reputation, and how well you communicate with each builder can be weighed honestly. For the full project budget beyond the builder's price, see what it really costs to build a house.