Which type of contract is most commonly used for residential construction?

The fixed-price contract is most commonly used for residential construction because it provides a clear and predictable financial structure for both the contractor and the homeowner. In this type of agreement, the contractor agrees to complete the project for a specified price, which typically includes all labor, materials, and overhead costs. This allows homeowners to budget effectively, as they know the total cost upfront.

Additionally, fixed-price contracts incentivize contractors to maintain efficiency and control costs since any expenses exceeding the agreed-upon price would be absorbed by the contractor. This aligns the interests of the contractor and the homeowner, leading to a smoother project execution.

Moreover, fixed-price contracts facilitate a more straightforward negotiation process and reduce the potential for disputes related to cost overruns that can arise with other types of contracts, such as cost-plus arrangements where costs can be variable and unpredictable. This stability and predictability in budgeting make fixed-price contracts the preferred choice in the residential construction sector.