Allowances: How Do They Work When Building a Custom Home
EDUCATION
If you have done any work on designing your custom home, I am sure that you have heard the term “allowance”. What is it exactly? In my opinion this is one of the most important elements in the planning and budgeting process when you begin to work with a builder. In my opinion, most people are unhappy with their builder because they didn’t hire an architect and interior designer to help them pull their vision out of their interior onto paper. These pages will later become the clearly defined instructions given to your builder to build your dream home. Secondly, people run out of money because they grossly underestimate how much things truly cost. Imagine, no plan or realistic budget based on your wants and needs...no wonder you end up disappointed.
An allowance is a dollar amount assigned to service or product needed in your home that has not been determined. For example, you may be given a $10,000 budget for lighting. When you go shopping or to a design center you basically have $10,000 to spend on lighting for your home. It is important to understand whether this is for decorative lighting only. There should be a totally different line item for the rough materials and labor that will happen behind the scene. You must also understand what happens if you cover over budget. Is there a reserve fund that is set aside or will you have to come out of pocket.
This topic is very important so I want to make sure I spend enough time addressing the importance of vetting your builder and why working with an interior designer is crucial when building a custom home.
Most builders use allowances when creating a budget. We are all clear there. The challenge comes into place when your builder is vague and prices out the finishes extremely low simply to keep his bid low. Why? Because he wants the job. Once you are in it...you have to figure it out. All builders don’t work in the same price point and few offer the same level of trim. If you want to build a luxury home and you choose a builder that builds entry level homes all day every day his perspective of what hardwood flooring may cost will be warped. He may build for people that are totally content with flooring that is $3 per square foot. What happens if you know you want flooring that will actually cost $15 a square foot. I assure you in most cases the builder will give you an impractical allowance that will leave you in a lurch. This doesn’t make the builder a criminal...while I have thoughts on this. It could simply be there was a lack of information regarding your specific taste levels when he prepared your budget.
Most people have an idea of what they like but no idea of how much it cost. Before you begin to budget or even meet with your builder, I highly recommend working with an interior designer. While your builder may be very skilled at the project management of building a home, he/she may not be skilled at space planning, lighting designing, and material selections. A designer is invaluable at helping you determine your design style and how you want to live in the space. Finally, a skilled interior designer can help you make design selections early on to avoid budget mistakes. If you really want marble, but your builder assumes that granite is what everyone loves..you will have problems. If you are able to present the types of finishes you want early on in the budgeting and bidding process, you are more likely to avoid having issues with covering over your allowances that are set by the builder.
Designing a custom home can be challenging and overwhelming. What are some of your challenges or questions that keep you from moving forward with building?
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