We recently talked to a nice couple who wanted to build a custom home unique to their specific needs. They gave us a budget that was probably $40,000 to $50,000 shy of what it would take to build the house they wanted.
Knowing that, we made some pretty serious design compromises in order to respect their budget. We finished the design and presented it, and they immediately began to make changes that would drive up the cost and exceed their budget.
After more discussion, we discovered that their stated budget wasn't really true. They gave us a lower number on the assumption that they needed to do that in order to "negotiate." They felt that if they gave us the true number, it would somehow weaken their position and allow us (their builder of choice) to take advantage of them.
As a result, they had to spend lots more time and energy to get the house they wanted. We made compromises based on their stated budget that turned out to be completely unnecessary. Who knows what the initial design might have looked like had we known their actual budget? It probably would have served their needs far better than what they ended up with in our initial design.
From their perspective, they were protecting information in the hopes of getting more for their money. I get it, but it really worked against them. The real question to me is, if they feel like they have to keep secrets like that from their builder, how do they expect the relationship to proceed from there? If it isn't a relationship based on mutual trust, how could they ever feel comfortable trusting my company with something as critical as their forever home?
If you're building a custom home, here's my advice. Learn enough about your builder to know whether you trust him. Once you've determined if you do or not, act on it.
If your builder wants to take advantage of you, he's going to do it and you'll never know. There are simply too many details and people involved in building a house, and there's no way for you to keep track of every one.
At some point, you have to trust that the people you hired to build your home are going to do it with honesty and integrity. If you can't do that, you've hired the wrong builder. And if you can't see yourself ever trusting a builder that much, you should probably buy an existing house.