When I Built My House: Understanding Builder Allowances in Custom and Production Homes

When I Built My House: Understanding Builder Allowances in Custom and Production Homes

How Do Allowances Work?

If your builder agrees, they may offer what’s called an allowance. This is a specified amount deducted from the total contract price to account for materials or products you provide instead of the builder. For example:

• If your home’s contract price is $325,000 and you receive a $10,000 allowance for supplying your own appliances, the final price becomes $315,000.

Builder allowances differ from home upgrades, which are premium options selected from the builder’s predefined list (e.g., higher-end flooring or a larger refrigerator). Allowances, however, are credits reflecting the builder’s estimated cost for providing the item.

The Flexibility—and Limits—of Allowances

There are no universal rules for allowances. Builders may:

• Prohibit them entirely.
• Limit the number or type of items you can supply.
• Require a cost-plus contract if you want extensive customization.

Common allowances include:

• Appliances
• Light fixtures
• Flooring

Some homeowners even bring unique items, like a cherished chandelier or custom-designed front door, to personalize their space.

The Problem with Allowances

While allowances offer flexibility, they come with risks:

• Scheduling delays: Late deliveries or incorrect products can disrupt construction timelines.
• Installation issues: Subcontractors unfamiliar with your materials may cause errors or delays.
• Quality control: Damage, wrong sizes, or missing parts can lead to costly replacements.
• Theft or loss: Builder insurance typically doesn’t cover materials you supply.

How Builders Price Allowances

Policies vary significantly:

• Some offer a dollar-for-dollar credit (e.g., $10,000 allowance for $10,000 in materials).
• Others deduct only their actual cost (e.g., $8,000 credit if their overhead and profit accounted for $2,000).

To avoid surprises:

• Finalize selections early to align with construction schedules.
• Clarify whether allowances cover only materials or include labor and overhead.
• Ensure all terms are written into the sales contract.

Key Takeaways

Builder allowances can help personalize your home and reduce costs, but they require careful planning:

• Communicate openly with your builder about policies and expectations.
• Anticipate potential delays or complications with third-party materials.
• Document all agreements to prevent disputes.