How Builder Allowances Work (& How to Get the Home You Really Want When Working With Them)

Building a new home is exciting, especially when it’s your first experience doing so. 

Whether you’re building a production home or a fully custom home, you’ll be called upon to make lots of decisions throughout the process – many of which will directly affect your daily enjoyment of your home once you move in, and all of which can affect your experience during the project in the form of added stress.

One area I frequently see buyers of new construction homes struggle with is how builder allowances work. 

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What are builder allowances?

Builder allowances are something homebuilders use to price your home before it’s built. 

While they can know upfront what most of the home is going to cost based on size, floorplan, etc., there are expenses that can’t be pinpointed until you make selections. For example, you’ll have to choose things like windows, appliances, lighting, counters, cabinetry, flooring, moldings, plumbing fixtures, etc., and even details like bathroom mirrors and electrical switchplates.

To account for these as-yet-undetermined expenses, builders set allowances and give you an estimated home price based on them. 

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How builder allowances work and what they mean for you

Builders usually set the allowance amounts for your home based on the average prices of a certain level (usually a mid-priced range) of those items.

That’s fine for giving homebuyers a general idea of what their home might cost. But if allowances have been set lower than what you might realistically need to spend to get the home you want, your total home price can initially look lower than it will actually end up costing you.

Real problems arise if you don’t like the options within the allowance amounts and don’t have the flexibility within your budget to upgrade.

 For example, say your builder allows a total of $30,000 for counters, cabinets, appliances, etc. That seems like a reasonable amount, but in reality, you’d be limited to lower-level “builder grade” options to keep your kitchen in line with that number. 

That’s completely fine if that’s what you’re looking for, but if you actually want to achieve a truly custom, beautifully designed “chef’s kitchen” with deluxe appliances, you’ll need to expect to spend at least $100,000.

In reality, allowances represent more of a base level for your home. Much like a car, you can upgrade items to take the base model to a whole new level. But you need to know that’s going to cost you significantly more.

Many new homebuyers and surprised and disappointed to find that the finishes they actually want cost more than the allowance amounts. They then have to decide if they’d rather forgo those ideal finishes and fixtures to keep the price of the home in line with what they’d originally planned for, or if they’re willing and able to pay more to get a home they’ll love.

In the process of putting it all back together. All of the drywall, paint, materials, flooring, etc. needs to go back together so you want a health allowance.

How to get the home you want when builder allowances are involved

One of the best ways to avoid unpleasant surprises after signing a contract on a home is to ask what allowance levels are represented in your builder’s portfolio images, model homes, etc. Because those examples are the builder’s showpieces, they more than likely boast considerable upgrades rather than representing what’s achievable within the allowance amounts.

You should also ask what’s included in those amounts since you’ll be responsible for additional expenses associated with your selections like sales tax and delivery and installation fees if these aren’t accounted for within the allowances. 

Having realistic expectations going into the project is vital for helping you plan your budget and avoiding having to make frustrating choices during a process that should be fun and exciting. By looking at the stated price of the home as a “base price” and then budgeting a realistic over-and-above amount for upgraded selections, you can get the home you really want without having to compromise on your budget.

Since it’s hard enough to make all the design choices necessary when building your home, let alone when allowance amounts aren’t sufficient to give you what you want, this is one area where investing in a good interior designer can more than pay for themselves.

Even if your homebuilder has a design center with a designer on staff to help you choose from the finishes and items they’ve selected, by working with an outside interior designer, you can be sure your best interests are represented during the selection process. And if your builder’s pre-selected upgraded options still aren’t what you want, they’ll be able to steer you toward other sources and help you select something you’ll love. 

That may not mean a designer can find incredible options within your allowance amounts. These things cost what they cost, and better selections and a wider variety of options are often only available at higher price points than what your builder allowances can get you.

What it does mean, however, is that a designer who’s well-versed in new construction and renovations knows how much things actually cost. They’ll be able to guide you to make smart choices while keeping your total cost in mind. They know how to create a beautiful, cohesive overall design for your home by spending more on certain finishes and less on others to keep your total cost down and give you a home you’ll love.

Sure, the cost of compromising your original budget to upgrade to the items that are right for you and your home can be significant. But on the other hand, the emotional cost of compromising and feeling disappointed with your new home (and/or having to plan to upgrade in the future to get something you actually love) is high. 

Going into your new home build project without expert guidance could leave you blindsided by difficult choices, 

By partnering with an interior designer to create a realistic budget and a beautiful finished result you love, you’ll avoid those painful compromises and have a win-win homebuilding experience! 

Mohindroo Interiors

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