ᐅ Developers with Limited Fixed-Price Commitment – Price Increases

I would like to ask for your advice.

I am currently in contact with developers and facing a problem.
The developer I prefer only offers a limited fixed-price guarantee...
This means they cover price increases up to 10% until construction starts (the foundation slab). Any price increases beyond that I have to cover myself.

Example:
Construction starts in February 2022
Price increase for concrete blocks is 17% in January 2022
The developer covers 10%, I have to pay 7%.
And they intend to apply this to all materials.

It is already clear that price increases will occur. Does anyone know about the announced price increases and have an idea of how many additional percent I should expect? And can anyone roughly estimate the extra total costs I might face based on an original build price of about 350,000 Euro?

Unfortunately, I don’t believe we will be able to start construction this year.

I would be very grateful for any support.

PS: And before someone says, “Find a different developer”: This developer offers very competitive prices compared to others and, in my opinion, treats me well. I do not feel taken advantage of. He also says that his limited fixed-price guarantee is the only “fair” option for both sides, which I understand. I simply want to estimate the expected additional costs with your help! Thank you 🙂

How do you plan to handle this practically? Will an appendix listing all building materials and their prices be attached to the contract? You need a baseline to calculate the price increase from.

I am familiar with the construction price index. Comparing the value at the start of construction to the value at completion, if it has increased by more than 10%, payment must be made for each percentage point exceeding 10%.

This is reasonably feasible only through the construction cost index. For individual prices, you need a bureaucratic system already in place before signing the contract to establish comparable prices.
The problem is that you are essentially buying a pig in a poke. You only build once, and one percentage point in house construction easily amounts to 4,000–5,000€ (approximately 4,400–5,500 USD). Costs can add up quickly.

No, this limited price guarantee has nothing to do with fairness... as a layperson, you have no way to verify the prices, and no wholesaler will provide you with that information. Does the developer refund you if prices drop? Probably not, right? 😉

You either trust that the developer won’t take advantage of you and hope prices don’t skyrocket... or you choose a developer with a real fixed price.

No one can reliably predict the situation in January, March, or August 2023. It depends on many factors... imagine if next week it’s not Nord Stream but Europipe 1 that breaks... then we won’t get through the winter without the building materials industry scaling back... just one of hundreds of possible scenarios for this winter.

PS:
Think about why the developer offers such good prices... because they can raise prices almost at will after signing the contract, they can of course offer you a very low entry price.
This is how almost all tenders for the public sector work. After signing, they tell the client, “Yes, well... you also need this and that and that, it’s not included... but you didn’t ask for it anyway...”

If the service and support after signing are still that good... then you can be happy. That it’s like this now, when they are trying to win you as a client, doesn’t mean anything 😉

I think 10% is fair. He also wants to protect himself.