Everything You Need To Know About Custom Home Builder Allowances

Some (not all) custom home builders will offer what is known as an allowance, which is an amount it would otherwise cost them to provide a particular product or service. The allowance is actually a subtraction from the total contract price – if you, for example, signed up to build a home for $325,000 but decided to buy your own appliances, the builder might give you an allowance of $10,000 (bringing the final price down to $315,000).

How do allowances work?

An allowance should not be confused with an upgrade, which you pick from a list of builder-approved choices. A better refrigerator or better flooring are perfect examples of this. An allowance is a credit for the amount it would have cost the company to provide the refrigerator or the flowing. There are no hard and fast rules when it comes to allowances – some builders will allow you to provide anything yourself, whereas others will accept only limited items.

There is no set list of allowances, either. Whilst they can vary greatly, some of the most frequent items on the list include appliances, light fixtures and flooring. It doesn’t have to comprise a complete set either – you could find a chandelier that you would love to have installed in your new dining room, but you are happy to let the builder handle the remaining light fixtures. We also knew of one family who took their custom designed front door with them in each move.

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What are the problems?

It is important to keep in mind that some custom home builders will not consider allowances at all and others will limit them. And this is for good reason due to scheduling, damage, quality and theft.

  • Scheduling – If the countertops you have decided to purchase elsewhere arrive later than planned, you have thrown the whole job off. In some cases, installers might have to be rebooked and it could take a while for them to become available.
  • Damage – If the item you have bought is the wrong size, broken, damaged or parts are missing delays can arise. You might have to find something else that will fit or you might have to call installers back to rearrange pipes etc in order to accommodate your purchase.
  • Quality – Most builders tend to work with the same subcontractors, so they know their work and know who they can speak with if there is a problem. If you have arranged an item yourself, however, the subcontractor is an unknown quantity.
  • Theft – Keep in mind that the countertops you ordered elsewhere are yours, not your builders. So, if they’re sitting on the worksite for a few days and miraculously disappear, this is your responsibility. The builder’s insurance will not cover them.

At the end of the day, all custom home builders will price allowances differently – some will give you a straight dollar-for-dollar discount, whereas others will only give you a certain percentage. You should also find out, in advance, how much of a credit your builder will allow and whether this amount covers just the product in question or if it includes labour, profit and overhead – you might think you’re getting a $10,000 discount but it proves to be only $8,000.

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