Depending on who you talk to, builder allowances are either losing propositions or necessary evils. Neither description is very reassuring, but there are instances when they can be used quite successfully during your construction project.
For allowances to be considered assets, it takes skill, integrity and timing on the part of your builder. Here are some ways to make builder allowances work in your favor.
What are Builder Allowances?
Allowances are exactly what they sound like – a set amount of money for certain products that you have not yet picked out is included in your contract. If any item’s price tag is higher than what is initially budgeted for, your house will end up costing more than the contracted price, with you paying the difference.
Builder allowances are frequently used in the planning stage, and common ones your contract may cover are:
- Light and plumbing fixtures
- Flooring and wall coverings
The Pitfalls of Allowances
It’s often extremely difficult to specify ahead of time every single material that will go into your own custom home build. While your goal should be to have the most detailed contract possible, a custom home involves many more choices than a semi-custom or spec one does. Your builder, then, will include allowances in the contract for some of these items.
The amount of each allowance is based on the total price of your home, your budget, and your specific needs.
Where you may run into problems is if you are working with a builder who, in order to present an affordable bid, sets allowances so low that it is impossible for you to choose the materials you really want at the prices quoted.
What You Can Do
Your builder bases allowance figures on what he or she feels will be adequate, but it is up to you, the homeowner, to investigate the true cost of each allowance. In other words, you need to at least window shop for your materials before signing the contract.
Whether you visit actual showrooms or conduct research online, do your homework to get an idea of what items like the cabinets and flooring you want should cost. Then, compare those figures with what your builder has allotted in the bid. Other options you may want to consider:
- Pre-select as many items as possible before your plans and specifications are finalized
- Keep change orders and project delays to a minimum by knowing ahead of time what items you’re likely to choose
- One of the greatest advantages to using the design/build model is that the entire team works together from day one. Talk to your builder about what you want before allowances are created so that unforeseen upgrades are kept at bay.
- Spend money upfront on products that will cost more down the road. Tile, cabinetry, and hardwoods, etc. are very expensive to upgrade. Other items, like towel bars and light fixtures can always be upgraded later for far less money.
Builder allowances, if handled properly during the planning stages, do not have to wreak havoc on your construction project. As long as there is clear, honest communication between you and your builder, and you have a financial reserve in place to cover small unexpected surprises, you’ll find the costs will be well worth it if it means living in your dream home.