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Old 02-23-2006, 06:13 PM   #1
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Contractor Allowances


A general question. We're building a 2400 sq. ft. ranch in Northeast Ohio. Contract price was $304K. The contract included allowances for various owner selections, flooring, vanities, tops, elec. fixtures, etc. I believe most contractors work that way. We have finished our selections and have exceeded the allowance by approx. $10k. My question is: is this a typical amount? What are the highs and lows and experiences of others? Are there any industry "rules of thumb"? Some of our allowances were underestimated by as much as 35%. I know this is perfectly legal and allows the contractor to bid low. However, at some point the issue of business ethics arise. What's the deal???
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Old 02-24-2006, 04:46 PM   #2
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Quote:
Originally Posted by Bill46
... We have finished our selections and have exceeded the allowance by approx. $10k. My question is: is this a typical amount? What are the highs and lows and experiences of others? Are there any industry "rules of thumb"? Some of our allowances were underestimated by as much as 35%. I know this is perfectly legal and allows the contractor to bid low. However, at some point the issue of business ethics arise. What's the deal???
Allowances might as well be called "guesses". When contractors offer allownaces what they're really saying is "you obviously haven't figured out how much you're willing to spend so here's a number to play with until such time as you do figure it out". I've never seen an alolowance offered with any degree of accuracy.
If you want hard prices you have to specify hard requirements. Otherwise its a crap shoot. There's nothing unethical about providing inaccurate prices for poorly specified requirements.

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Old 02-24-2006, 05:51 PM   #3
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well put pipeguy...
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Old 02-24-2006, 06:20 PM   #4
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I have seen people blow the lighting allowance with 1 or 2 fixtures. It is based on SWAG to me
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Old 02-24-2006, 07:59 PM   #5
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It sounds to me as if YOU exceeded YOUR budget. This is not the contractors fault, I deal with it daily. New homeowners often bump this a few hundred and then that, before long they are in pretty deep. I keep warning them but it usually does any good and, in the end, it's always my fault.
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Old 02-24-2006, 09:28 PM   #6
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Bill,

You are in a tough situation right now and I am sympathetic to you problem, however here are a few things to consider.

Allowances are set by the contractor and homeowner based on a combination of preferences, tastes, and budget usually during the first meeting. During the next few meetings tastes and wish lists are reviewed and $$$ for these tastes are established. When building a custom home all aspects of the construction can be massaged to a certain extent to meet a customers expectations but this has a price.

You are spending a good deal of money for your home but your contract will ultimately dictate how you can spend it. If you have an allowance of $30,000 for a kitchen and you really want a $50,000 kitchen who exactly is at fault? This applies to all of your allowances!

If you have a reputable contractor then he probably tried to read your needs and based your allowances on similar houses he built for people with similar tastes and needs. If your contractor is not one of the good ones then he may have told you what you wanted to hear knowing that you were not going to get what you wanted for the amount of money that you were willing to pay. Guess what, at this point it doesn't matter he is still building your house either way.

I recently went through the building process on a house of my own with a very limited budget. I was fortunate to have a great builder and things went picture perfect. One reason that things went so well was that my builder took our budget and was able to work within this budget to give us what we wanted. However, our job was to stay within our allowances. When we strayed from these established limits he quickly pointed out the variances and we had to make sacrifices in other areas to help offset these overages. Our builder was a very straight shooter and I remember during the first sit down when we talked money he told a story about a house he had priced some time before and he made a comment that went something like "the guy wanted a Corvette with a Chevette price tag".
His point to us was that we could spend the money on our allowances as stated in the contract but If we wanted more then we would pay more for these upgrades. It was in our contract in black and white and we knew exactly what we had to work with before we even started to build as I'm sure yours was also.

I hope that your building experience does not end poorly and right now it is up to you. You need to circle the wagons, have a sit down with your contractor and clairify every concern, question, and gripe before it gets out of hand and decide where to make cuts in order to come in at your budget. I'm sure that communication or lack of will ultimately decide the outcome of your project.

Good Luck.
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Old 02-25-2006, 05:46 AM   #7
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great input! we are also going to be over on our allowances, but i knew that from the beginning and planned on reaching into savings to cover the difference. i of course am only looking at maybe a few hundred $$$!
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Old 02-26-2006, 12:57 PM   #8
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very well said Alan & welcome aboard.
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Old 02-26-2006, 08:28 PM   #9
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Bill, welcome and I see you've gotten very good feedback. Your allowance overage is about 3.2%. Honestly, that doesn't sound too bad to me. You haven't exactly defined what your $10,000 overage comes from. Upgrading your kitchen cabinets alone could add well over $10,000 to the final price. The bottom line is you have to either accept the selections you've made or change them.

To give you another example, many years ago I purchased a new home that included $5,000 in upgrades through the builder. We selected upgraded kitchen cabinets, upgraded carpet underpad and added approx. 12 pot lights - this used up the $5K in no time. As I remember it, the pot lights were about $150 each. It kind of all depends on what you're getting for that additional $10K.

I really don't think your builder has done anything unethical from what you've described. And again, $10,000 over on a $300K home does seem like a huge variance to me.
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Old 03-01-2006, 04:37 PM   #10
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pop in on us sometime at www.contractortalk.com. there's a handful of excavating guys and we'd welcome another.

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