The only reason a custom house should cost double is if the homeowner goes crazy adding stuff, or if major extra work is needed during excavation that the builder didn't anticipate.
I've custom built also. I think wssix99's comment was elated, but in the big scheme he was trying to make a valid point.
Obviously the price shouldn't double -- but if you max budget is $200k, then you should set a lower target price and leave the rest as a contingency fund to use for unexpected discoveries (rock excavation, etc) or upgrades you failed to mention upfront or learned about since then. About 5-10% of the target price is common for most people. Using that theory and a $200k max budget, I'd set a target build price of $180-190k and leave the rest for contingencies.
It's smarter and better to use less money than your initial max budget vs scrambling at the last minute to secure more financing and/or deplete your personal cash reserves.
Having been in construction management my entire life, I really cannot stress the importance of a solid contract. Like it or not, two people from the same conversation can (and does) walk away with different interpretations of what is expected of each other. Putting all that in writing makes it crystal clear. I'd also suggest some sort of a performance clause and legal voodoo to protect yourself in the event the builder oversells and under delivers. Remember, we all see the good guy upfront when they are selling themselves. The nasty guy comes out later.
Having a detailed set of plans and specifications for things you want are important as well. I'm a guy that is all about the "bones" of the house, so things like a post-tensioned slab, better quality lumber, more insulation, oversized electrical panels, etc is important to me. The stuff most homeowners are wowed by like big crown moulding, wood floors, etc can be added/upgraded later IMO. The bones aren't easy to change.
That being said, we are all human and want nice things. Decide what upgrades are important to you in the beginning and prioritize them. If you are married, have your spouse do the same list. Then discuss them and make a combined list that you can both agree upon. Building in general is very stressful as it's a huge event for the average Joe, and can cause stress on a marriage. Being as clear and in agreement with each other beforehand may save your marriage. I've known people that building a house literally started the process to their divorce because they underestimated this simple but important step.
If you are custom building, a strong architect makes a big difference. I've built 3 homes, one of which I did the design myself. I wasn't in a hurry and had the luxury of using AutoCAD to my own designs. All said and done I spent about 1.5+ years looking and designing. I think I logged 25+ revisions to the original drawings before I had something I wanted to talk to a builder about. It was a labor of love for me, as I enjoy that process but some people don't think about it that much. Also, in my case I had a spouse that couldn't see anything in real life by looking at plans so walking through model homes and taking a tape measure and letting them "feel" a room of similar size, ceiling type, etc was critical.
Once you are ready to find a builder, interview several different ones. Ask for a list of homes they are in the process of building. I like to look at different stages so I know what to expect at all levels. Take references with a grain of salt. They typically won't give you a name & number that won't talk good about them. If you are lucky enough to walk through a site that is in-progress and catch that homeowner there, I found their opinions more honest and not so "bubbly". Overall, I expect some speed bumps with a builder. It's unrealistic to think it'll be picture perfect. The difference is how a builder handles the speed bumps.
