Most RecommendedCustom Home Builders

Do custom home builders negotiate prices?

Most of the movement on a custom build is in the specification and the contract type, not the margin: NAHB puts builder profit at 11.0% of a new home's sale price.

Start with the size of the thing you would be negotiating. NAHB's 2024 survey breaks the sale price of a typical newly built house into seven parts, and profit before tax is 11.0% of it, against 64.4% for construction cost and 13.7% for the finished lot. Even a large concession on the margin moves a smaller number than a moderate change to the specification does. That is not an argument against asking. It is an argument for asking about the right line.

Source: NAHB

This page is general information, not professional advice, and it is not legal advice. Contracts, prices and licensing rules differ by state and by builder, and the only terms that bind anyone are the ones in the document you sign.

The contract type is the first negotiation

NAHB says you will be contracting in one of three ways — a fixed bid, cost plus, or a combination of the two — and each one puts the risk somewhere different. On a fixed bid the builder carries the unknowns and prices contingency in whether or not it is needed; NAHB says plainly that you may not get the most competitive price because those what-if funds have to be there. On cost plus you carry the unknowns and pay only what is spent plus the markup, and NAHB's stated downside is that there is no incentive to finish fast or to buy materials wisely because everything is marked up. Which one you sign is the largest single decision about your price.

Source: NAHB

NAHB also gives the buyer's argument for the combination contract directly: if you invest your time in choosing cabinets, why should a builder take a percentage for ordering them? It says a combination bid can make the process easier for both sides while building trust, and that not every builder offers one. That is a negotiation about structure rather than about price, and it is available before anyone has quoted anything.

Source: NAHB

The allowances are where the money quietly moves

The American Institute of Architects defines an allowance as a placeholder dollar amount in the contract sum for an item whose exact cost cannot be determined at bid time, and says the actual cost replaces it through a change order once the item is selected and bought. Under its A201 general conditions the allowance covers the material or equipment delivered to the site including taxes and less trade discounts, while unloading, handling, labor, installation, overhead and profit sit elsewhere in the contract sum. Two bids at the same total are not the same bid if one of them is holding more of the house as placeholders.

Source: American Institute of Architects

Asking a builder to convert three allowances into named specifications is a bigger win than asking for a discount, and it is a request a good builder can say yes to.

What the builder's own numbers look like

NAHB Eye on Housing reports an average gross profit margin of 20.7% and an average net profit margin of 8.7% for builders in fiscal 2023, on average revenue of $11.3 million with 79.3% of that going to cost of sales and 12.0% to operating expenses. It records the 20.7% as the highest gross margin since 2006 and adds its own caveat: increased use of incentives such as mortgage rate buydowns, and cuts in home prices, are likely to have shrunk the margin in 2024. Those are industry averages across companies, not a number on your contract.

Source: NAHB Eye on Housing

What to ask for instead of a discount

  1. Ask for the same house on both contract types, so you can see what the fixed-bid contingency is costing you.
  2. Ask for the three largest allowances to be replaced with named specifications at a stated installed price.
  3. Ask what the change-order fee is, and whether it applies when a selection comes in under the allowance as well as over.
  4. Ask what is excluded. NAHB's guidance is that a detailed contract spells out what work will and will not be performed.
  5. Ask about the schedule and what happens to the price if it slips, and get the answer in the contract.
  6. Ask about the warranty, which NAHB lists among the markers of a professional builder alongside clear contracts and insurance.

The full comparison of the three ways a builder can charge: cost plus versus a fixed price contract.

The strongest negotiating position on a build is three real bids on the same specification. These are the custom home builders AI assistants actually name when homeowners ask. Nobody can pay to be on these lists.

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Questions people ask next

Can you negotiate with a custom home builder?
The parts worth negotiating are the contract type, the specifications and the allowances rather than the margin. NAHB puts builder profit at 11.0% of a new home's sale price against 64.4% for construction cost, so the specification carries far more movement than the margin does.
How much can you negotiate off a new build?
No source used on this page publishes a figure for that, and inventing one would be worse than saying nothing. What is published is the shape of the price: NAHB's 11.0% profit share, its 20.7% average gross margin for builder companies in fiscal 2023, and HomeGuide's 10% to 20% general contractor fee.
Is cost plus negotiable?
The percentage is, because NAHB describes cost plus as time and labor plus a percentage markup on materials without publishing a standard figure. Ask what the percentage is, what it is charged on, and whether it applies to labor as well as materials, all before you compare the bid to a fixed one.
Should I ask a builder to lower their price or change the spec?
Changing the spec moves the larger number. NAHB measures interior finishes as 24.1% of construction cost, the largest of its eight stages, with cabinets and countertops at 4.5% and flooring at 3.6%. On NAHB's figures a margin concession is a negotiation about 11.0% of the price; a finish decision is a negotiation about a quarter of the build.

Written for homeowners by Most Recommended Custom Home Builders, which measures which custom home builders AI assistants actually recommend in 12 U.S. metros. Nobody can pay to be on those lists. How we measure.