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The concept of builder allowances can be confusing to new-home buyers. You may wonder if it’s worth the hassle, or if it will save you money in the long run. While there are certainly both pros and cons to allowances, you need to understand the theory and the risks involved before deciding whether or not to go the allowance route when building a new home.
Some builders offer buyers allowances on various budget line items tied to the construction of a new home, such as lighting, hardware, or appliances. The amount of the allowance given is deducted from the price of the home, For instance, if a house costs $500,000, but you (the buyer) have access to a wholesale source for appliances and lighting, your contractor might consent to giving you an allowance of, say $7,000, which would be deducted from the sales price of your home. You would then need to decide if you thought you could reasonably purchase the appliances and lighting you want for enough less than the amount of the allowance to make it worth your while.
An installed allowance assumes that you are providing not only the excess materials but the labor to install them. Therefore, the contractor will take the lack of workload into account when calculating your allowance. Not all contractors are willing to offer this type of allowance, as they will not wish to assume the responsibility of warrantying the work of trades with whom they have had no prior association.
A material allowance means that you provide only the materials, not the work. In other words, you purchase the lighting, but your general contractor is still responsible for seeing that the fixtures are installed. You must remember to keep in close communication with your builder, as most choices affect underlying factors in the home, such as framing to fit around appliances, or reinforcement for a large ceiling fan.
There are several reasons to consider a builder allowance:
While there are perks to allowances, not all contractors permit them due to the list of cons:
Although sometimes confusing, builder allowances may be worth exploring. It never hurts to know what your options are as a buyer before the construction process begins.