Think of a scenario where you are building your house, the contractor offers “allowances” for materials and products you would be supplied in the builder process.
Among other things, you are supplied an upgraded set of windows, another brand of appliances, a super-efficient gas fireplace, automatic garage door openers and better light fixtures.
Of course, its a one-of-a-kind custom home.
But the point here is that even when you are buying a production house — a model that is repeated several times in the same community and in the builder’s other properties — you may have the opportunity to purchase your carpeting from other places instead of through your builder or bring your almost-new and much loved restaurant-grade range with you from your old house.
How Do Allowances Work?
If your builder is so inclined, he will offer you what’s called an allowance, which is an amount for what it would otherwise cost him to provide the product or service. The allowance will be a subtraction from the total contract price.
Allowances are not to be confused with upgrades, which you pick from a list of builder-provided choices. A better refrigerator, for example, or better flooring. Allowances, on the other hand, are credits for an amount that it would have cost the builder if he provided the item.
There are no hard and fast rules when it comes to allowances. Some builders won’t allow you to provide anything, while others will allow you to provide a limited amount of supplies. If you want to supply too many items, they believe, you might as well hire them as general contractors to erect your now-custom house on a cost-plus basis, the plus being an amount to cover their overhead as well as a profit.
What constitutes a reasonable number of changes depends on the particular builder. So you have to feel yours out to see what their policies are.
There’s no set list of allowances, either. They vary greatly, but among the most frequent are allowances for appliances, light fixtures and flooring. And it doesn’t have to be a complete set. People often want to bring their prized dining room chandelier with them, for example. And one family I know of brings their custom-designed front door with them whenever they move.
The Problem with Allowances
Of course, there are good reasons why one builder may not consider allowances, while others will limit them. One is scheduling. If the countertops you purchase elsewhere come in late, that throws the whole job off. If one item doesn’t show up on the job until two weeks after the installers have moved on, they have to be brought back — and who knows when the installers will be available.
Another frequent problem with allowances is that the item you buy is the wrong size, broken or damaged. Sometimes parts are missing or the product is the wrong colour.
Say you buy a super-upgraded whirlpool tub for your master bath at a discount store in the next county. Now say it arrives and it is too large for the space allotted by the builder.
Or maybe it’s so scratched up that it’s unacceptable. If it’s the wrong size, pipes must be moved to make way for your tub, and that means the plumber and electrician must be called back to the job. If it’s damaged or the wrong colour, it must be returned and replaced, which causes delays.
One more potential issue with allowances is the quality of the subcontractor installer. Builders tend to work with the same subs over and over, so they know their work — and they know who they can bark at if there is a problem. The builder’s subs also move from house to house within the same subdivision, so they sometimes are close by when a problem is discovered and can return easy enough.
Your guy, on the other hand, is an unknown quantity. And if he screws up installing the kitchen cabinets you purchased at the discount store, he’s usually nowhere to be found to make the fixes. The result, of course, is another delay.
And then there’s the problem of theft. The kitchen cabinets you ordered elsewhere are yours, not the builder’s. So if your cabinets sit on the jobsite for a few days, or even overnight, and then disappear, they are your responsibility. The builder’s insurance won’t cover it.
Each Builder is Different
Different builders will price allowances differently, so pay particular attention here. Some will give you a discount, but others will only give you a certain percentage of their original cost.
One way to avoid these problems is to make your choices early, so the builder will have the correct specifications and they can be ordered in plenty of time. It is also wise to make sure you understand completely the builder’s pricing policy as it applies to allowances and that it is written into the sales contract. That way, there will be no surprises or misunderstandings. So, don’t be afraid to ask questions.
Finally, be certain you know in advance how much of a credit the builder will allow and whether it covers just the product in question or if it includes an amount for labour, profit and overhead.
