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What You Need To Know About Allowances When Building a Custom Home

When You Need To Know About Allowances When Building a Custom Home

Allowances items called out when designing/pricing your new custom home can be confusing and at times misunderstood. It is extremely important for you to know what they are, what they mean, use them strategically, and stay within their limits. In order to get the most accurate allowances possible, it's best to have your home builder involved in the home design and pricing process as early as possible.

How Do Allowances Work When Building a Home? 

Not many people outside of the home building industry are aware of builder's allowances. Some industry experts think they are a good way to make sure the buyer gets what they need and want out of their investment, while others think building allowances complicate things unnecessarily. In reality, the latter is only true if you're working with builders that are not equipped with the systems and processes to properly assign accurate allowance quantities and amounts.

 

Construction Allowance Definition

A construction allowance is set when a price needs to be put on paper but the cost of supplies and materials cannot yet be precisely determined. It is a placeholder for the owner's ultimate selection to establish a basic budget for one or more parts of the project — particularly finish selections.

Essentially, an allowance is an item or list of items in the budget for things that ultimately will require a final decision, but have not yet been solidified. An allowance is set aside to help you to create a budget before making final selections. Allowances make it possible to proceed with the project despite the fact that decisions with regard to final details are not yet settled.

Construction allowances can cause delays, conflicts, and budget overruns when they are not fully understood. But when evaluated and used properly, they are a great way to ensure you get what you want, and maybe even save money during construction.

 

Common Problems with Allowances During Home Building

A very common issue people have with allowances when building their home is how inaccurate the allowances tend to be. Because allowances are just a placeholder, it is common for them to lack specificity or detail, leaving open the possibility of choosing a more expensive material then what was initially assumed during your design meetings.

There are two reasons allowances tend to be off the mark:

  1. In an attempt to reach an overall total budget number for the build, home builders may set the allowance amounts extremely low. This can cause frustration down the line when your final decisions about materials end up costing you way more than the allowances led you to believe.
  2. Architects may misjudge what the final cost of materials will be because, well, they're designers not builders! Some architects may use allowance assumptions that are no longer accurate due to the recent price changes in materials. 

This is why it's good to get away from choosing a builder (or architect) based on how they price your allowances in the early stages as these figures tend to be incorrect more often than not — sometimes deliberately in order to reduce the overall price of their proposal.

This is also why it is important to have your builder and interior designer involved in the custom home building process as early as possible so that they can give you the most accurate expectations from the get-go with more precise allowances.

 

How Southern Green Builders Does Allowances

We like to give the most accurate allowances we possibly can, and we do this by creating allowances based on materials in the style you are going for. We take the time to go through each item that needs a selection to understand what price range fits your taste. Additionally, through the use of highly accurate quantity take off software programs, we are able to calculate precisely the amount of each material needed. 

For example, if you had expressed interest in a certain kind of brick for the exterior during your design meetings, we will multiply the current or expected cost of that particular brick by how much of it would be needed. If you were interested in a specific kind of door handle, we would multiply the price of that by how many handles would be needed. Therefore, creating an understanding and providing a basis by which each allowance is set.

As mentioned, many home builders won't be nearly as precise in their estimates; they may not necessarily price based on cost per sq. ft. or cost per unit, or they may even create allowances based on materials that are much cheaper (and worse quality) than those that correspond with the design you expressed interest in.

For these reasons and more, it's important to make material and project selections as soon as possible that reflect your desired finished product to prevent misleading or inaccurate allowance amounts. Southern Green Builders will be happy to consult with you to make sure your allowances don't go over budget. Get in touch to learn more.

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By Sam Seidel | September 3rd, 2021