Glossary

Custom home glossary

Plain-English definitions of the terms first-time custom-home buyers run into — from land feasibility through punchlist. Written by practitioners, not marketers.

Construction

Allowance
An allowance is a placeholder dollar amount in a construction contract for a finish or fixture you haven't selected yet.
Bid (custom home)
A bid is a builder's written estimate of what it will cost to build a specific design and specification.
Builder fee
The builder fee is the builder's compensation, usually expressed as a percentage of hard costs (cost-plus) or as a fixed contract margin (fixed-price).
Change order
A change order is a written amendment to a construction contract that adds, removes, or modifies scope and adjusts the price accordingly.
Site work
Site work is everything that happens to a parcel before the house can be built — clearing, grading, driveway, utilities, septic, well, drainage.

Finance

Cost-plus contract
Cost-plus is a construction contract structure where the buyer pays the actual cost of materials and labor plus an agreed builder fee.
Fixed-price contract
A fixed-price contract sets a single contract price for a defined scope, with the builder absorbing cost overruns and keeping savings.
Construction loan
A construction loan is a short-term, interest-only loan that releases funds in scheduled draws as the home is built, then converts to (or is refinanced into) a permanent mortgage.
Draw schedule
A draw schedule is the list of construction milestones that trigger lender disbursements during a construction loan.
Appraisal (subject-to)
A subject-to appraisal estimates the future value of a home based on plans and specs, not on a finished structure.
Contingency (budget)
A budget contingency is a reserve — typically 5–15% of hard costs — held back to absorb unforeseen conditions and change orders.
Hard costs
Hard costs are the physical-construction costs of a home — materials, labor, subcontractors — distinct from soft costs like design, permits, and financing.
Soft costs
Soft costs are non-construction project costs — architect and design fees, permits, surveys, engineering, financing, insurance, and legal.

Process

Specification (spec)
A specification is the written document that defines exactly what is and isn't included in a home — materials, brands, models, dimensions, and finishes.
Punchlist
The punchlist is the documented set of items a builder must complete or correct before a home is considered substantially complete.

Land

Land feasibility
Land feasibility is the diligence process that determines whether a specific parcel can support the home you want at a cost you can afford.
Zoning
Zoning is the local regulation that determines what kind of structure and use is allowed on a specific parcel.
Setback
A setback is the minimum legal distance a structure must sit from a property line, road, or natural feature.
Easement
An easement is a recorded right that lets someone else (usually a utility or neighbor) use part of your land for a specific purpose.
Perc test
A perc (percolation) test measures how fast soil absorbs water and determines whether a parcel can support a conventional septic system.