Terminate the contract with the general contractor "early"

Hello everyone,

after years of following up with the municipality, we have now gotten our absolute dream property and signed the notarized contract this week. Shortly after, we already had the first meeting with a general contractor and are currently waiting for the offer. More meetings will follow next week. There is already a development plan for the property and the infrastructure should be completed by late summer.

We would most prefer to start as soon as possible because interest rates will probably continue to rise and we have heard that many home construction companies will soon no longer offer a fixed price guarantee. However, we are not quite sure when we can conclude a contract with the general contractor because we have not yet paid for the property (we already have the money for it, but are still waiting for the invoice from the notary) and also still need to finalize the financing with the bank (we have already had preliminary talks with our house bank and they would finance us, but naturally would still need a detailed cost breakdown).

After waiting several years for the property, one would think that a few weeks more or less wouldn’t matter anymore. But since the monthly payment will be quite challenging anyway, we really want to secure the fixed price guarantee so that it doesn’t suddenly become significantly more expensive than planned in the end.

Would you already sign a contract with a general contractor before the property is fully paid? Pretty sure that only the real estate transfer tax would still be outstanding anyway, because I assume the notary’s invoice will arrive next week and we would then pay it immediately.

Many thanks and best regards

I know the situation. We didn't wait years for the plot, but we did reserve it undeveloped. That was at the beginning of November '20; development started in mid-November. Trusting that we could build from early summer onwards, I signed the contract with the general contractor at the end of January '21, with the clause to obtain a fixed price within 5 months of getting a building permit. Everything was developed by early September '21, and my notary appointment was in mid-September. The surveyor could access the site plan from the end of October onwards, and without it, there is no building permit. The fixed price was, of course, long gone by that time, and meanwhile, the KFW subsidy was also changed from project start = construction works to project start = contract signing.

I then got out of it with more luck than sense because the general contractor only charged an extra €1500 for the carpenter despite exploding prices and made a new contract that fulfilled the condition for the KfW. It could have gone very differently, with the loss of the subsidy and a surcharge on the price according to the construction cost index.

Therefore, my advice: be super careful. Assume that the development will take significantly longer than planned and make sure that the fixed price also applies then.
You can sign the contract at any time, but then you are also responsible for accepting the house. If the plot is not developed, the builder is liable for it. If you already have financing for amount X and the general contractor adds on... your problem.

I know the situation. We didn’t have to wait years for the plot, but we also reserved it before it was developed. That was in early November '20, and development work started in mid-November. Trusting that we could start building by early summer, I signed the contract with the general contractor at the end of January '21, with the clause to obtain the building permit within 5 months at a fixed price. The plot was fully developed by early September '21, and my notary appointment was mid-September. The surveyor could only access the site plan from late October, and without it, there is no building permit. The fixed price was naturally long gone by then, and meanwhile the KfW subsidy was changed from project start = start of construction to project start = contract signing.

I then got off lightly with more luck than sense because the contractor only added €1500 for the carpenter despite skyrocketing prices and made a new contract that fulfilled the conditions for the KfW subsidy. It could have gone very differently—with the subsidy lost and a surcharge on the price based on the construction cost index.

Therefore my advice: be super careful. Assume that development will take much longer than planned and make sure the fixed price still applies then. You can sign the contract anytime, but then you’re also responsible for accepting the house. If the plot isn’t developed, the builder is liable for that. If you already have financing for amount X and the contractor adds on costs... your problem.

Great, thank you very much for the reply! I hadn’t even considered the aspect of development and will definitely bring it up in the next conversation with the general contractor. However, we do have a bit of a buffer anyway since the contractor could only start in spring 2023.

Would you already sign a contract with a general contractor,

I already answered that in a similar situation a few days ago:

2. You should above all never sign a construction contract hastily!

We would now most prefer to start as soon as possible because interest rates will probably continue to rise and we have heard that many homebuilding companies will soon no longer offer a fixed price guarantee.

A price guarantee is only worth as much as it is backed by a corresponding completion bond. Without such a bond and if the provider then finds out that they cannot keep their price promises, you will possibly have to deal with their insolvency administrator to enforce the construction contract. And of course, every cost increase that the contractor cannot pass on to you should be taken as a reason to invest accordingly more in the accompanying expert inspections on site (otherwise one is "held harmless" by botched execution).
Anyone who believes cost increases can be repelled by price guarantees might as well try to stop the clock to save time ;-)

Do yourself a favor and "save" on size and fittings, that is more solid.

Shortly thereafter, we already had the first meeting with a general contractor and are currently waiting for the offer. More meetings will follow next week.

Then hopefully you have decided on a catalog design, because for a well-thought-out individual planning this sounds like a process that is too short or a patchwork job. In the section "Experiences with [Baufirmen]" there are, by the way, hints about more or less recommendable providers for many building regions here.

I am normally an incredibly patient person and would have no problem taking several more weeks or months for planning. But if in a few weeks or months I suddenly have to pay 100-200 euros more per month because interest rates and/or raw material prices have risen further, that just means we have to do without other things like vacations, because the installment is already quite tight as mentioned (my wife is currently on parental leave). We would like to avoid that.

A price guarantee is only worth as much as it is backed by a corresponding completion bond. Without such a bond, if the provider then finds that they cannot keep their price promises, you may have to deal with their insolvency administrator regarding the fulfillment of the construction contract. And of course, any cost increases that the builder cannot pass on to you should be used as a reason to invest more accordingly in the construction-related expert (otherwise you "absorb" the botched execution without compensation).
Anyone who believes they can dispel cost increases with price guarantees can also stop the clock to save time ;-)

Do yourselves a favor and "save" on size and features; that is more solid.


Hopefully, you have decided on a catalog design, because this sounds like a process that is too short or rushed for a well-thought-out individual planning. By the way, in the "Experiences with [construction companies]" section here, there are hints about more or less recommendable providers for many building regions.

That would mean that a fixed-price guarantee generally doesn’t really bring much. If the general contractor goes insolvent because they cannot keep the prices, that is obviously really bad. But 1. I cannot imagine that companies with decades of experience calculate so recklessly that they do not already factor in some fluctuations in raw material prices. And 2. they also stockpile and usually have well-filled warehouses. Of course, they don’t have materials stored for the next three years. But I assume that is exactly why they are now beginning to let the fixed-price guarantees expire. And I do think that the general contractor without a fixed-price guarantee is more likely to add something on somewhere than without a fixed-price guarantee.

Yes, we are definitely choosing a catalog house. 130 sqm, no basement, no garage, district heating, no photovoltaics (only preparation for later), standard equipment… So we are already keeping the house modest since we are spending a lot on the land (although it is community land and only half as expensive as on the free market, but in an area where you pay 1100-1500/sqm on the free market). And I really don’t want to save even more on the house (since, as I said, we have almost no saving potential), just because I take longer now and wait until interest rates and material costs rise even further.

We are having talks with several general contractors, but already have two clear favorites. One GC was recommended to us by the municipality and is right in town. At the other GC, my oldest friend works, who can get us certain discounts.

But 1. I can't imagine that companies with decades of experience calculate so negligently that they don't already factor in certain fluctuations in raw material prices. And 2. they also hoard and usually have well-stocked warehouses.

1. Negligent calculation is a very harsh term for the fact that construction companies have to operate with dangerously slim margins due to competitive pressure. 2. idle warehouses are the first consequence of price spikes in material procurement. If the price spikes are not just a short shower, restocking won't happen quickly either. The inventory levels are therefore sufficient – even if only by luck – not to have to implement short-time work due to a lack of supply. Read here for a few weeks, then you'll see how many construction delays are already evident on site.

We do have talks with several GCs, but already two clear favorites. One GC was recommended to us by the municipality and is located directly in town. At the other GC, my oldest friend works, who can grant us certain discounts.

A regionally operating GC is at least relatively a better choice in any economic situation. Besides, the legal departments of the big names might come up with more tricks to soften fixed price agreements.