Always, always, always include a buffer
Whether you are acting as your own general contractor to save money, or you're using the services of a professional custom home builder, including a buffer in your budget for unforeseen expenses is an absolute must.
Allowing for miscellaneous expenses is so crucial that I would go so far as to say that if you've received an estimate from a custom home builder that does NOT include an allowance for a buffer or contingency, I would seriously question the validity of the numbers presented. A healthy contingency allowance is a sign of an honest builder.
You might be wondering why an experienced custom home builder would need to allow for unforeseen expenses. Here's the thing, unless a builder has previously built that same design, there is no way to know EXACTLY what the home will cost to build. There are literally hundreds and hundreds of variables that can impact the total cost of your build if you're asking a general contractor to build a home that they have never built before. That's why being prepared with as much detail for your new home in advance is so helpful in creating a dependable budget.
Regardless of how thorough the original estimate is, there are still several types of expenses that can possibly fall into this contingency category. Things that could arise during the construction process might be renting a pump to dry out a flooded excavation, excess snow clearing, extra screw piles if the engineered layout doesn't match the draftsperson's original assumptions, framing changes to accommodate HVAC or electrical requirements, etc. There are so many extras that can pop up during the process that can't be forecasted. Being prepared for these extras can make the process so much more enjoyable.
So, how much should you allow? As an experienced builder and an experienced budget creator, we allow 5% on EVERY project. If you are acting as your own project manager and do not have previous experience putting together detailed estimates, I would suggest using a 10% buffer to leave room for a few extra error and omissions.
Let's be honest, the extra expenses will pop up regardless of whether or not you allow for them in your original budget, so you might as well be prepared for them from the beginning. If you are using bank financing by way of a construction mortgage, even the bank will likely require you to allow for these miscellaneous items. As painful as it might look on paper...it's the right thing to do!