What is an Allowance?

When you’re building your custom home, you might see the term allowance in your contract with the builder. As someone new to the world of construction, chances are you don’t know what this means. Today, we’re going to take a look at allowances and how they affect your final budget when building a new house.

What is an Allowance?

A construction allowance is a common agreement between a builder and a buyer. It’s created to cover the cost implicitly, not directly, accounted for in the contract. These types of agreements are often necessary to create flexibility within the project so that the contractors can safely take the job. In general, they are formed around items that can not be properly assessed until the job is underway. 

Rocks and Finishes

One great example of a need for an allowance is when creating the foundation. When you build a custom home, there is a chance that you haven’t had your soil tested. If that’s the case, then the builder might not know what’s under the ground. Should they get out there to create the foundation and find nothing but rock, it’s going to cost more than if it was just soil. It’s that uncertainty that creates an allowance.

 

Another example is if you haven’t decided on the finish of the kitchen or floor. Your builder might say that you have from X to Y dollars for the finish and the floor. At a later time, either you or the builder would decide what will go into those spaces with the money put aside.

How Does an Allowance Work?

There are two common types of allowances that are commonly used in a project. The first type of allowance is the material allowance. This is often the type found when the customer can choose from a wide variety of materials for things like flooring and carpet. If the customer hasn’t chosen the final material, then the contractor can not give a fixed price.

 

Second, contractors often use installation allowances. These will be used for design elements that could have unforeseen installation challenges. Think about the issues that we talked about in regards to the rock under the foundation. Though it can still be done, it might take more time or money to complete.

Important Considerations

When you are looking to get a custom home built, there are things that you should understand about allowances. First, not every company uses them the same. Some companies use allowances to appear to be cheaper than the competition. Your contractor should be able to show you why each allowance exists as well as the various cost projections that created the allowance. In general, you should be aiming for the perfect balance between a realistic cost and the fewest amounts of allowances.

 

While conducting and unideal, allowances are a required part of remodeling or building a home. Understanding what you are walking into and come prepared so that you can experience the most simple process as possible. If you are looking for a custom home, check out Wiltrack Construction.